Does your law firm have questions ahead of its next PII renewal?

1.

Do insurers still have an appetite to offer PII to law firms – and are there any new insurers we could consider?

The answer to both questions is a resounding “yes”!

Let’s start with the good news about new insurers entering the market. In August 2023 the solicitors’ PII team at Howden introduced a new A-rated facility with Lloyd’s of London insurers. This facility was the first meaningful new capacity to be introduced to the solicitors’ PII market for some years. It is exclusive to Howden and builds on our existing access to one of the widest selections of insurance providers available through a single broker.

Another insurer, Fortegra, opened for business in the solicitors’ PII market in September 2023 and they are accessible to Howden. More new capacity (namely Alchemy Underwriting) is also expected in 2024 and they will likewise be accessible to us.

And we must not forget existing markets, many of whom have been writing solicitors’ PII since the start of the open market in 2000. We are also seeing an increased appetite for new business from this group of insurers.

In short, all is well when it comes to capacity in the solicitors’ PII market.

2.

What is happening with premiums?

In 2023 we saw rate stability returning to the solicitors’ PII market and we expect this to continue. The introduction of new capacity discussed above is having an impact here. The increase in competition means existing insurers needed to be mindful of keeping premiums in check to ensure they retain those firms they know would be attractive to new entrants. This could even mean improved premiums for those firms that are considered to be a particularly good risk.

However, it is important to remember that some of the increase in recent years has been “market correction”. We do not expect premiums to return to the levels they were prior to the hard market. Rates will need to settle at a level that enables insurers to provide cover that can be sustained under the very broad Minimum Terms and Conditions with which primary policies must comply. The solicitors’ PII market is one of the most challenging when it comes to claims, particularly when the property market and broader economy are troubled. We will be maintaining a watch on the notifications that we are receiving through 2024, as any increase in frequency or severity of claims could impact the positive progress we have seen over the last 12 months. We will keep you informed.

For a more in depth discussion of what is happening in the solicitors’ PII market, including our forecast for 2024, please see our Market Report published in January 2024 and available here.

3.

Are we likely to see longer policy periods being offered?

We saw longer policy periods start to make a return in October 2023 and we expect there will be more conversations about this as firms renew in 2024. From an insurer’s perspective it means they can lock in the more attractive risks they want to retain. For firms it means that they are able to budget further into the future, which will be useful in the current economic environment. It also means that the time and resources spent dealing with the PII renewal at the 12 month point can be usefully directed elsewhere. 

When you begin work on your 2024 renewal, we recommend you talk with us about the availability of longer policy periods.

4.

Do we need to be aware of anything that might be particularly worrying our PII insurers this year?

Inevitably there are issues that are “on the radar” for underwriters. Forewarned is forearmed and we encourage you to review the list of issues we published in our most recent Market Report and available here. You can then consider whether there are any points you need to address in advance of your next PII renewal.

5.

We have been doing conveyancing for leasehold properties that are subject to the requirements of the Building Safety Act 2022 (the BSA). Is that going to cause a problem?

The BSA has attracted the attention of PII insurers and many are now asking questions about this work. 

Fortunately it is not claims activity that has attracted their attention – at least not yet. Insurers have picked up on the difficulties with the BSA that have been well-documented in the legal press. They are concerned about the additional risk and the potential for claims. 

Firms need to be mindful of this development and ensure that at their next PII renewal they are in a position to respond to any questions in a way that will give insurers the reassurance they are seeking. For more information on this issue we refer you to an article we published in October 2023 available here.

6.

Our gross fees for residential conveyancing have dropped considerably in the last financial year. Does that mean our premium will reduce?

It would be unwise for firms to reduce the amount they have budgeted for PII based on a reduction in conveyancing fees. Given that PII policies are written on a “claims made” basis, underwriters must continue to cover you for all past liabilities and will therefore still need to consider gross fees (and the activities they were derived from) in recent years. However, as always, Howden will be working hard on behalf of clients to negotiate the best possible premium. 

Be sure to highlight to underwriters any risk management or governance strategies that you have in place for the conduct of your conveyancing work (both historically and currently). We have included a list of points to consider under the heading “Property Market/ Coveyancing” in a section of our latest Market Report. You will find it here.

7.

Our gross fees for conveyancing have increased, but our transaction numbers are still the same, how will insurers deal with this and will it affect our premium?

Insurers rate on fees as opposed to transaction volumes. However the scenario described is a point we would always highlight with insurers. We would argue that the risk is unchanged and press very hard for insurers to make an appropriate adjustment to reflect this.

8.

We are aware of some of the cyber incidents affecting law firms and particularly the CTS incident late last year. So far we have been lucky, but will having a Cyber Policy in place help with our PII renewal?

Law firms, whether big or small, are a target for cyber criminals. Be in no doubt, your PII insurer is very concerned about cyber security given the potential for cyber incidents to lead to client loss that then becomes the subject of a PII claim.

We are seeing more questions on PII proposal firms relating to this issue and some PII insurers are making their quotations subject to confirmation that a firm has a Cyber Policy in place.

A Cyber Policy provides first party cover, for example enabling you to source the expertise needed to get your systems up and running to resume service following a hack or outside intrusion. To be frank, we don’t think you can afford to be without this cover.  But make sure you understand what you are buying – policy wordings and cover differ.

9.

Are short proposal forms likely to be available at my next renewal and are they a good idea?

Some insurers are prepared to accept a short proposal form for selected renewal clients. Your broker will be able to tell you if it is an option for your firm.

However, while a short form can save you from a great deal of time and agony, it can limit your ability to source alternative quotations in the market. A full proposal form will usually be required for another insurer to offer a firm quotation.

So, even if a short form is an option, you might want to consider completing the full form to avoid a last minute scramble if you decide to go to the market for alternative quotations.

Your Howden broker will be able to talk you through these issues to help you make the best decision for your firm.

10.

How long before the renewal date should our PII proposal form be completed and how long will it take to get a quotation?

Ideally, we recommend that your proposal form should be completed and ready to submit to us no less than six weeks in advance of your renewal date. Firms generally find that they take longer to complete their submission than anticipated, so set your timelines carefully and particularly the deadlines by which you require others in your firm to provide you with the information you need. Don’t let their procrastination become your emergency.

The time that it will take to get a quotation varies from insurer to insurer. Your broker will be able to tell you when they expect each insurer to start issuing their quotations. We are conscious that some insurers have been very late in quoting at recent renewals, but this is all the more reason to make sure that you are at the front of the queue. 

11.

What should we do if we don’t collect data in a way that enables us to answer some of the questions asked on the proposal form?

Pick up the phone and talk to us. We can discuss the issue with you and the potential for your firm to provide the information in a way that is compatible with your systems, but still addresses the risk issues that insurers are concerned about.

Likewise, if you are unsure what the question is asking and how to answer it, then answer to the best of your ability and explain both your understanding of the question and your response in a covering letter.

12.

What can we do to demonstrate to insurers that our firm is a good risk?

A well-completed renewal submission is a good start to attracting the attention of your insurer for the right reasons. 
Take time to ensure that you are providing all the information insurers are asking for on the proposal form and provide additional information where you think that is needed to further explain or justify your response. Where narrative answers need to be given, make sure that your answers are clear, concise and address the issue. 

We also encourage you to submit a supplementary document or letter to assist in showcasing your firm. This is an opportunity to detail issues such as new risk management initiatives, a change in the strategic plan or even a change in management that could be relevant to the assessment of risk. 

Resist the temptation to repeat information that is already included in your answers on the proposal form. Stick to those issues that are likely to make a difference to the assessment of risk. If your claims history is less than stellar, this is an opportunity to explain additional background to insurers, challenge any reserves and advise what changes you have made in the firm to prevent the issue arising again.

We recommend an article we published last year entitled: “Showcase your firm with additional information at renewal” available here.

13.

We are discussing plans for our firm to be acquired by a larger practice, but it won’t be completed before our renewal date. What should we do? Will we get a refund if we cancel mid-term?

There are various options in this scenario. You could renew as usual and then cancel if and when the acquisition proceeds. The potential issue with this option is whether insurers will allow a refund when you cancel. Insurers differ in their approach to this issue and if you need to notify any claims or circumstances under the policy prior to cancellation, then a refund is unlikely. In any event a return premium would only be available to you where the acquiring firm became a successor practice and the need for run off was negated.

If you do renew as usual and then take “elective” run-off prior to the acquisition, it may be possible to negotiate an improved position such as asking for early cancellation of the current live policy and putting any available return premium due to you against your run-off policy. Again this can vary between insurers.

An alternative option is to ask insurers to extend your existing policy for the time you need, with additional premium being calculated pro-rata based on your expiring premium. Even if insurers insist on a premium uplift, this is still a practical solution. Renewing for a short period is also permitted under the rules and offers a similar solution.

We should also mention the Extended Policy Period (30 days) and Cessation Period (60 days) that enable a firm to continue to practise in circumstances where they have not been able to renew their PII. We would not recommend this option. It is not the purpose for which the extension was designed, and insurers are not kindly disposed to it. You are also required to notify the SRA – you might want to avoid attracting their attention in this way.  If the acquisition does not proceed, then the cover required to continue the practice would need to be backdated to the expiry of your last policy. This could be difficult and expensive, or in the worst case scenario even impossible, particularly if you have had a claim in the intervening period.