1 October 2022 PII renewal for Law Firms: Still a glimmer of light at the end of the tunnel?
31 October 2022
1 October continues to be the most significant date for the renewal of Professional Indemnity Insurance (PII) for SRA-regulated firms.
At Howden we are reviewing the data and will present a full analysis in our next Market Report for Law Firms that will be published in January 2023. In the meantime we are keen to give firms some insight regarding the result and answer the questions many of you are asking right now.
Did premiums increase again?
The short answer is that premiums for the primary £2m or £3m of cover did increase further for those firms renewing their PII on 1 October 2022. But, as with the 1 April 2022 renewal, the reason for this was two-fold. Firstly, most firms had an increase in gross fees for the last completed financial year prior to 1 October 2022. Given that insurers rate on fees, a firm’s gross fee increase therefore translated to a higher premium and across our renewal book this was the reason for the majority of the premium increase that firms saw.
Where insurers were also increasing rate, there was a further uplift in premium. While insurers varied in the amount of rate increase they set out to achieve across their renewal book, the good news is that we continued to see a flattening of the curve that we saw for the 1 April 2022 renewal. Across our renewal book the increase in average rate was back to single digits. It is encouraging that we are continuing to see a glimmer of light at the end of what has been a very long tunnel.
Premiums for excess layer insurance have risen significantly during the hard market, particularly in relation to those layers up to £10m, which are now more generally seen as “working layers” as a result of the increase in high-value claims over recent years. While some firms still saw increases at 1 October 2022 this was mainly due to their fee growth and there was more rate stability for excess layer premiums than we have seen since we moved into the hard market. We believe that this is a sign that excess layer underwriters are gaining comfort that their rates are now commensurate with the risk.
Keep talking to your broker as your next renewal approaches so you can stay informed of any further developments or changes. The position will always depend on the profile of your firm (with reference to your claims history and areas of practice in particular), the expectations of your insurer and the wider economic and risk outlook.
Did many firms change their insurer or were insurers focusing on their existing clients and uninterested in quoting for new business?
There is more good news in that we saw a continuation of the shift observed at the 1 April 2022 renewal, with underwriters again showing appetite for quoting new business. While this was generally limited to those firms that insurers perceived to be a good risk due to their work split, claims record and financial strength, it is nonetheless encouraging progress.
This is something we expect will continue through 2023, particularly given that there has been a significant movement of underwriters around the market in recent months. As individual underwriters get their feet under the desk in their new place of work, we anticipate they will be keen to attract those law firms they know to be good, profitable risks based on their past experience.
Were insurers still worried about conveyancing and limiting the amount of conveyancing work (as a percentage of gross fees) that they were prepared to consider?
Conveyancing work remains in the spotlight and we saw underwriters continuing to limit conveyancing work as a percentage of overall gross fees when it came to quoting new business. The extent of this differed from insurer to insurer and can be further influenced by the size of a firm.
The restrictions imposed did continue to limit the potential for some firms to secure alternative quotes to compare to the renewal terms they received from their existing insurer. In those instances it was important for firms to ensure they advanced the best possible renewal presentation to their insurer, including information about additional risk controls they had introduced for conveyancing work – particularly in response to the increase in transactions as a result of the SDLT holiday during the pandemic.
Given how high premiums are, did any new insurers take the opportunity to join the solicitors’ PII market?
While there is nothing significant to report regarding new capacity for 1 October 2022, we suggest you stay tuned for more updates. The introduction of new capacity in the PII market for law firms is currently anticipated in early 2023.
New capacity is a development we have all been waiting for. Coupled with the reshuffle of underwriters amongst existing insurers described above, this is the catalyst we have been hoping will move us on from the hard market. All being well that glimmer of light at the end of the tunnel will get brighter and nearer.
Were insurers asking about work undertaken for sanctioned individuals and entities?
Russia’s invasion of Ukraine has prompted PII insurers (on both primary and excess layers) to ask about work undertaken for sanctioned individuals and entities and also seek a broader understanding of any exposure a firm has to Russian individuals and entities, or work that has involved property or activities in Russia. For some insurers the concern and enquiry also extended to other countries such as Belarus, Syria and Iran.
These questions first emerged in the lead up to the 1 April 2022 renewal and firms who have not renewed their PII since this development should contact us for further discussion, particularly if your firm currently undertakes work that is likely to fall within the ambit of concern or has done so historically.
Were PII insurers asking about cyber security and wanting to know if firms have separate cyber insurance?
Cyber security is an issue that has been steadily creeping up the agenda for those insurers providing PII to law firms. There is no doubt that law firms, whether big or small, are a target for cyber criminals.
Some underwriters were requiring that firms had safeguards such as MFA and VPN in place as a subjectivity of their quotation for PII. Separate cyber insurance cover was also a requirement in some instances. It is important to remember that while the SRA’s Minimum Terms and Conditions will provide cover for civil liability arising in the course of private legal practice as a result of cyber crime, a separate cyber policy is likewise important. It will provide first party cover, for example enabling you to source the expertise needed to get your systems up and running to resume service to your clients following a hack or outside intrusion.
What are the top 3 issues law firms should put on their agenda to consider as they prepare for their PII renewal over the next 12 months?
It is useful to consider where you should focus your attention and resources in advance of the next PII renewal to ensure you are addressing those issues that insurers are likely to be most concerned about in 2023. This could change depending on any new risks that emerge and the general economic outlook, but at the present time we would highlight the following as the top 3 issues to consider:
In Howden’s view, the current economic outlook is going to cause insurers to be even more wary about the financial health of the law firms they insure. If a firm is forced to close, then the PII insurer on cover at the time must provide 6 years of run-off cover, even if they do not receive payment for the run-off premium.
Expect that your financials and future business plans are likely to be the subject of significant scrutiny. If you know this could be an issue, we would suggest you consider reviewing your strategy, including taking professional advice, sooner rather than later. If the numbers don’t look good you will need to be ready with a story and a plan.
On the flip side, if your firm is in strong financial health, this is a point that you should ensure you emphasise at your next renewal. Don’t just leave it for insurers to work out from the information or accounts you provide. Highlight the point in a covering letter or document – underwriters always like good news.
You have heard it all before – conveyancing gives rise to more claims than any other area of practice when it comes to PII for law firms. If we look back to the recessions in 1990 and 2008, we see a significant spike in claims arising from conveyancing. Given the volatility of the current economic position we find ourselves in, firms will need demonstrate to underwriters that the risks associated with conveyancing work have been managed robustly and the potential for claims activity is low.
As explained above this has become a particularly sensitive topic for PII underwriters. Ensure the issue is on your agenda and that you both understand and are meeting the expectations of your PII underwriter.
Our full analysis of the 1 October 2022 renewal will be published in January 2023, together with more information and insight regarding the issues that law firms should focus on when preparing for renewal 2023. In the meantime please get in touch if you would like to discuss matters further.
Written by Jenny Screech LLB (Hons)
Legal Consultant, Howden PII