Beware of increasing your self-insured excess to save money on your Professional Indemnity Insurance (PII) 

The April 2019 renewal period is now in progress and many firms may begin to experience premium increases as a result of changing market conditions. This is the result of some insurers taking remedial action following the poor performance of PII generally. Refer to our briefing note “Professional Indemnity Insurance – A Hardening Market” for more detail on this.  

Any increase in premium may cause some firms to reflect on whether they can increase their self-insured Excess to contain their PII spend.  We urge caution with this approach.  

You need to consider the following points:

1. Affordability is critical. If a claim or claims arise during the policy year, will you be able to afford the Excess payment(s)? What will your financial position be if you have more than one claim? 

2. In the event of the Excess being unpaid to a claimant within 30 days of its becoming due for payment, then upon request from the claimant, the insurer must pay the Excess on your behalf.

This can have significant consequences for your firm, as follows:

a) The underwriter is likely to be concerned about the financial stability of your firm, which could impact adversely on the view they take at the next renewal. You might find that underwriters no longer want to offer terms, or will only do so with a reduced Excess and a higher premium

b) If an Excess is unpaid then there could be regulatory consequences for your firm. Under Rule 16.1 of the SRA Indemnity insurance Rules 2013 it is a disciplinary offence for any firm, or principal in a firm, to be in “policy default”. The definition of policy default is set out in the Glossary to the SRA Handbook and includes a failure on the part of a firm or principal: “to reimburse within two months a participating insurer in respect of any amount falling within a firm’s policy excess which has been paid on an insured’s behalf to a claimant by a participating insurer.

3. A number of proposal forms in the market include a question directed to whether the firm, or any individual in the firm, has ever failed to meet any Excess payment. An failure to pay could therefore haunt you or your firm for years to come.

Howden is a specialist PII broker in the legal professions market. We place £45m+ premium on behalf of firms practising in the legal sector.

Our client base comprises over 650 legal services firms from sole practitioners to Top 100 firms. Given our size in the market we have a strong negotiating position with insurers, which we use to the best advantage of our clients. We have direct access to the majority of Participating Insurers with either exclusive or enhanced access to 5 “A” rated insurers.

We invite you to contact us if you have any queries in relation to this bulletin or would like to discuss PII and related insurance products for your firm.

Written by Jenny Screech, Consultant, Howden PII. 

Find out more about our PII for the legal profession.