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Showcase your law firm with additional information at renewal

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Law firms often complain that the information they are asked to provide on their Professional Indemnity Insurance (PII) proposal form does not allow flexibility for them to properly showcase their firm.

We agree that the forms leave little room 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.

These points can be canvassed in a meeting with your underwriter, but the reality is that only a limited number of firms have the opportunity to engage in such a meeting. How do you get this information across if your firm doesn’t have that opportunity?

The answer is for firms to prepare a covering letter or supplementary document to submit to insurers with their proposal form. In fact we encourage all firms to do this – whether you are a sole practitioner or Top 200 firm.

You might also need to submit supplementary information to answer questions on the proposal form that require a narrative response. That can either be a separate piece of work or included at the end of the letter or document we are proposing here. Just ensure you clearly distinguish between the two.

Before you get started on this exercise there are two very important issues to consider:

  1. How long should the covering letter or document be?
  2. What information should be included?

How long?

Underwriters do not want “War and Peace”. Do remember that they are busy people, and their time will be particularly stretched if your renewal falls on 1 April or 1 October, which remain the busiest dates for the renewal of solicitors’ PII.

We recommend that you try to keep this document to three pages at the most. We also encourage you to consider the style of delivery. Remember how you feel when a client sends you a lengthy communication that is “stream of consciousness” in style with single spacing, long sentences and no headings or attention to paragraphing? The prospect of reading it is seldom attractive.

In contrast, information that is focused, in a bullet point style and includes headings that sign post the various issues you are covering, will make for easier reading. It will also be well received by your underwriter, and enhance the potential for a good outcome on your renewal. 

What information should be included?

Don’t throw the kitchen sink at this. Use the space and your underwriter’s time wisely. 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. Here are some suggestions of points you might like to consider including:

A change or update of your strategic and/or growth plans

Have you had a change in strategy and/or growth plans since last renewal? Depending on the scope of this it might be material information that you need to advise underwriters about in any event. But even if it does not reach that threshold, you should take the opportunity to provide an update on strategy and plans, and highlight any particular issues that will have a positive impact from a risk perspective.

Recruitment to risk and compliance teams

If you have engaged additional people in your risk and compliance teams then this investment is definitely something to highlight to your underwriter, along with some brief details regarding the areas they will be focusing on.

New work areas

If you have introduced any new work areas since your last renewal then it is important to reassure underwriters that there is skill and expertise within the firm to both undertake the work and supervise it. We therefore suggest you include some brief details regarding the experience of those who are involved, together with the reasons for introducing the new work area.

Cyber security update

We are seeing more PII claims that arise as a result of cyber-related incidents and cyber security is definitely high on the radar for your underwriter. In addition to responding to cyber questions on the proposal form, it will also be useful to detail any new security or technology you have introduced to control cyber risks since your last renewal. Information on training and any penetration or other testing you undertake will also be of interest to underwriters. You want them to be reassured that you take this issue very seriously.

New risk management initiatives

Insurers expect you to have a risk management manual, detailed guidance relating to important risk and regulatory issues, and processes for supervision and file audits. But many firms go above and beyond the standard and are regularly reviewing and introducing new initiatives and processes. Your underwriter will be interested in this. Take the opportunity to detail any new or revised initiatives, or anything you do that goes beyond the norm and highlights your firm as being aware and proactive when it comes to the management of risk.

New technology that will assist to manage risk

If you have invested in new technology since the last renewal that will help to manage risk, then make sure you include a brief update.

Claims and circumstances

If your claims record shows significant claim payments or reserves, offer an explanation within your supplementary information. A few lines on the circumstances, your thoughts on liability in respect of open matters and any other relevant points can be useful, particularly where you consider the claims print paints an unduly pessimistic picture.

You should also take this opportunity to tell underwriters what you have learnt from claims and whether you have been able to close loopholes, tighten procedures, introduce new systems or do anything else to remove the opportunity for an issue to arise again.

Promoting the mental health and wellbeing of all individuals in the firm

While mental health and wellbeing is on your underwriter’s radar, we are still seeing limited questions relating to this on proposal forms. Don’t think this means that underwriters aren’t interested. They are, and they are becoming increasingly aware of the link between poor mental health and PII claims.

We know that many firms are addressing this issue and introducing initiatives to promote mental health and wellbeing within their firm. Take the opportunity to tell your insurer what your firm is doing.

Finances

If your firm’s financial position is challenged then we recommend you address this issue well in advance of your next renewal. Insurers will be concerned given they are required to provide 6 years run-off cover if a firm is forced to close while they are on risk, whether they are paid for it or not. You therefore need to be ready with a story and a plan that is compelling. The covering letter or document is the place to state your case.

Likewise if your firm is in a strong financial position, take the opportunity to highlight that. For example, if you never or rarely use your overdraft, have no borrowings and low debtors, then make sure you point this out – underwriters like good news.

Responding to potential downturn in work as a result of the economic recession

Your PII underwriter will be monitoring the impact of the current economic turmoil on the property market. Their concerns are two-fold. Firstly they are concerned that the downturn in transaction volumes will adversely impact the financial stability of firms, and secondly that a drop in property values could be a catalyst for PII claims against solicitors. They remember that this occurred when the property market faltered in the early 1990s and again in 2008. We encourage firms that engage in conveyancing work to consider what they can tell underwriters to reassure them. We have recently published an article dealing with this issue in more detail. It is available here.

Do remember, we are not suggesting that you include all of the points listed above and the list is not exhaustive. There might also be some issues we haven’t included that are relevant for your firm. Focus on those issues that are likely to impact on the underwriter’s assessment of risk.

Jenny Screech

Written by Jenny Screech LLB (Hons)

Legal Consultant, Howden PII