Law Firms: Preparing for your PII renewal?
1. My next renewal is 1 April 2021, are we still in a “hard market”? Is my premium going to go up again?
Regrettably we are still in a hard market for solicitors’ PII and if you are a 1 April renewal you should plan for potential increases on both your compulsory £2m or £3m primary cover and excess layers. For a full analysis of this we refer you to our latest market report available here. Capacity could also be an issue so we strongly advise firms not to leave it too late and to get their renewal submission in as soon as possible.
At Howden we have direct access to several “A” rated Participating Insurers. Our position as a specialist and a leading player in the legal professions market means we are well placed to achieve results for our clients in challenging times.
2. Is conveyancing still concerning underwriters?
Yes, conveyancing is an area of practice that continues to be of concern to underwriters and many currently have a limited appetite for any new business where the conveyancing exceeds a certain percentage of overall gross fees. For the October 2020 renewal the upper limit was within the range of 20% to 30%, but we have recently been put on notice by two insurers that they are reducing their cap to 20% for any new business presented at the forthcoming 1 April renewal.
There are various issues in relation to conveyancing that are making insurers nervous. For more detail on this we refer you to our article 'Conveyancing – why are underwriters troubled?' available here.
3. We have Lexcel and CQS - will that get us a discount on our premium?
Insurers rarely advertise a fixed discount for Lexcel, CQS or any other accreditation. However, it is an issue they are interested in and underwriters can make an adjustment when calculating premium if they consider that the firm has good risk management processes in place – which will include a consideration of any accreditation that they have. On the flip side a concern about poor risk management process can result in a decision to load the premium.
It is not simply a matter of “having the badge”. Underwriters want to be satisfied that the risk management policies associated with a particular accreditation are embedded into the culture of the firm. If they are, then this will usually be reflected in a good claims experience – which is a more significant driver towards achieving a lower premium.
4. Are there any policy changes that I should be aware of?
There haven’t been any changes to the Minimum Terms and Conditions since your last renewal. However, firms do need to be aware that the SRA have indicated that they will shortly be consulting on some possible changes to address the issue of “silent cyber”.
This could lead to policy changes mid-term. For more information on this issue we refer you to our article “Silent Cyber – what you need to know before renewal” available here.
5. How soon should I start working on my proposal form?
If your firm renews its PII on 1 April you should be working on your proposal form now. You will find that insurers are asking more questions than they did at your renewal last year and it takes time to get the information together.
For those who renew later in the year, you should keep in contact with your broker to ensure you stay informed about what is happening in the market and identify any particular issues you might want to address.
When preparing for renewal, firms might find it helpful to review our article entitled “Risk issues under your PII underwriter’s spotlight” which is in our Market Report referred to above and available here. This will help you to identify risk issues that you might want to review.
6. We don’t collect information in a way that enables us to answer some of the questions on the proposal form. What should we do?
If it is too onerous or impossible for you to gather the information, then the best option may be to explain that on your proposal form and provide any other information you can to address the risk issue that the question is focused on. At Howden we encourage our clients to communicate with us so that we can assist them in this situation. We can advise on the point of the question and we can discuss whether the alternative information you have is likely to be satisfactory to insurers.
7. The risk management questions on the form only ask for yes/no answers. We deal with some matters in a different but equally effective way to what is outlined in the question - so should we just tick yes given that we have the issue covered?
No! This is bad practice and there is a precedent for the SRA taking disciplinary action where a yes/no question had been answered incorrectly on a PII proposal form https://www.solicitorstribunal.org.uk/sites/default/files-sdt/11648.2017.Dhami_.pdf.
In this situation simply mark the question with an asterisk and note “refer attached”. In your supplementary pages you can then reference the question and explain how this risk issue is addressed in your practice.
8. We became the successor to another SRA-regulated practice during the last policy year. Do I need to include their gross fees?
Yes. You need to include the data from the firm in relation to gross fees and areas of practice for current and historic years. In fact all questions should be answered with reference to both firms. It is therefore important that you have access to historic PII proposal forms for any prior practice firms. You will also need to obtain the updated claim summaries for any prior practices going back for as many years as the insurer requires.
9. My broker keeps saying that he is waiting for a broker in a different company to get my renewal quote. Why is another broker involved?
Brokers do not have direct access to all insurers – in fact some have direct access to relatively few. In this situation they will access markets through another broker. This is known as “sub-broking”.
The disadvantage of this arrangement is that you are one step further removed from the underwriter and there is another participant in the transaction who requires payment for their services. When choosing a broker it is always good practice to ask what markets they have direct access to, and those that they can only access via a sub-broker. At Howden we have direct access to the majority of Participating Insurers with either exclusive or enhanced access to 5 “A” rated insurers.
10. We have a claim that has just been reserved at £200,000. How will that affect my premium?
There is no escaping the fact that a sizeable claim is likely to cause concern and may result in a premium increase. It is always difficult to determine what the extent of the impact will be. It will depend upon factors such as the firm’s claims experience generally, the loss ratio (i.e. the profit or loss that the insurer has incurred over the time it has been on cover for the firm), the insurer’s view of the risk management processes within the firm and the potential for this or similar mistakes to be repeated.
If you find yourself in this situation, then this is another reason to start the renewal process early, in case your current insurer increases the premium to a level that is not sustainable and your broker needs to take your risk to market. It is also important to ensure that you reflect on the background to the claim and any changes you should make to your processes to prevent a similar issue arising in the future. Always document such actions in a covering letter or the supplementary information you submit with your proposal form. Likewise, if you consider that a matter has been over-reserved, or an overly pessimistic view has been taken by your insurer’s claims team, make sure you explain your views on this. We would encourage our clients to discuss such issues with their claims contact here at Howden. Our claims team is very experienced and can assist to “fight your corner” in this scenario.
11. We are very cautious and notify lots of matters, but very few ever come to anything. Will that make insurers think we are a bad risk?
Not at all. In fact insurers like to see precautionary notifications being made occasionally throughout the year. This will show that risk management is alive and well within the firm and that there truly is an open door policy, where fee earners will raise issues and concerns as and when they arise. An experienced underwriter will have a broad idea of the level of precautionary notifications that they can generally expect to see from a firm based on its size and areas of practice. When it comes to mid or large sized firms, it can be more of a concern if there are few notifications, but those matters that are notified are claims that involve significant payment. That can cause an underwriter to worry that a firm is not notifying everything it should.
12. There have been some delays getting the finance arranged for our premium. Funds will not be available until a couple of days after our policy renewal - is that a problem?
Potentially this is an issue. The Minimum Terms and Conditions do not allow for cancellation of cover due to non-payment of premium. As a result, to confirm cover, most insurers insist on cleared funds (or in some cases for the broker to be in possession of cleared funds), or confirmation that the insured firm has an irrevocable offer of finance from an approved provider. Don’t leave arranging finance to the last minute and always check with your broker what the requirements are for your insurer. If cover has not been confirmed by the time your existing policy expires, technically you will be in the Extended Policy Period (EPP). Under the SRA Indemnity Insurance Rules (Rule 8.1), a firm needs to notify the SRA of entering the EPP “as soon as reasonably practicable and in any event no later than five business days” after the date on which it enters the EPP.
You really do not want to attract the attention of your regulator in this way. Problems could also arise if you have a claim in the new policy year, but before cover is confirmed – there is a risk insurers might change their mind about the renewal.
13. What happens if I have agreed a price with my insurer and another claim comes in before the new policy date?
First and foremost the new notification needs to be notified to your insurer without delay. If all the formalities for renewal have been concluded and the insurance renewal contract is complete (this will almost certainly include compliance with payment requirements referred to above), then it should not be possible for the insurer to try and re-negotiate the terms of cover. On the other hand if you have not fully satisfied the insurer’s requirements to conclude the insurance renewal, then they might try to re-negotiate. As a broker we always fight very hard to maintain terms in this situation. This is easier to achieve where the matter is a circumstance as opposed to a claim. However, even where a matter is a claim, it is likely to be early days. With little time to assess the issue we would always argue that consideration of the matter should be held over to the next renewal.