1 April 2022 Solicitors’ PII Renewal: Is there a glimmer of light at the end of the tunnel?

The 1 April renewal for solicitors’ PII is now behind us. We will be publishing an in-depth analysis in our next Market Report published in early July, but in the meantime we are keen to share this high level overview.

Impact of the Russian invasion of Ukraine on solicitors’ PII

The invasion of Ukraine is undoubtedly having a ripple effect in all sorts of ways and this included the 1 April renewal of solicitors’ PII policies. It was a significant issue for insurers and something all law firms need to be aware of.

PII insurers were quick to react when Russia invaded Ukraine and presented additional questions for completion alongside what are already lengthy proposal forms. Their enquiry was not limited to whether firms acted for sanctioned individuals and most were seeking a broader understanding of any exposure to Russian individuals and entities, or work that had involved property or activities in Russia. For some insurers the concern and enquiry also extended to Belarus and other countries such as Syria and Iran. The position was changing constantly as insurers continued to present additional or revised questions, some of which were difficult to interpret and answer. Some insurers also required that the answers were considered by their compliance departments as well as underwriters, which slowed the process even more. This resulted in delays in quotations being issued and cover confirmed.

The sanctions exclusion under the Minimum Terms and Conditions (MTCs) also became the focus of attention.  The exclusion is triggered if the provision of cover, payment or a benefit under a policy would expose the insurer to any sanction, prohibition or restriction under various resolutions, sanctions, law or regulations. Broadly, this means that if a claim is brought by a sanctioned individual or entity it cannot be the subject of cover.

When it comes to excess layers the position is even more complex, as excess layer insurers are not bound by the MTCs. Insurers can, and did, impose additional exclusions. These varied from insurer to insurer and we spent a great deal of time ensuring that firms were alert to any exclusions imposed.

If your firm’s PII renewal is during the remainder of this year and your firm currently undertakes work that is likely to fall within the ambit of concern (or has done so historically), then we recommend that you contact us for further discussion.

Are we still in a hard market for solicitors’ PII?

The burning question is whether PII premiums are continuing to increase, or are we moving on from the hard market. The short answer is that most firms saw a further increase in premium for the 1 April renewal, but the reasons for this were varied.

Insurers rate on fees, so if fees have increased then the premium will likewise increase. Given that many firms have generated higher fees as a result of the SDLT holiday through 2020-21, this did result in premium increases. Where insurers also increased their rates, there was a further uplift in premium.

While most insurers were still increasing rates, the extent of this varied from insurer to insurer and it was not applied consistently across each insurer’s entire book of business. Claims activity, disciplinary concerns and other risk issues drove higher rate increases for some firms. This underlines the bespoke approach that insurers take to calculating a firm’s premium and the importance of maintaining focus on risk management in an effort to keep claims and disciplinary issues in check.

On a positive note we were seeing the first “glimmer” of a shift in appetite amongst primary insurers of the primary MTC layer, with more competition and more stable premiums for those firms that insurers perceive to be a good risk due to their work split, claims record and financial strength. This is encouraging progress.

Excess layers remained more challenging with both limited appetite and capacity in the market. However due to the strength of Howden’s position and relationships in the market we continue to be able to secure excess layer cover for our clients.

The hard market is not unique to solicitors’ PII and other professions are similarly affected. Finding new insurers prepared to engage in the solicitors’ PII market and provide capacity remains a key solution to moving forward out of the hard market. The current level of PII premiums in the solicitors’ market increases the potential for new players to emerge. In the meantime no Participating Insurers have left the market and there is still a solid pool of A-rated insurers offering primary cover.

Focusing on cyber-related issues

Cyber security continues to be a point of focus when it comes to solicitors’ PII. We are seeing more claims arising as a consequence of cyber-related issues and insurers are concerned about the additional risk involved in many fee earners continuing to work from home with systems that are not as secure as they should be. Recent high profile ransom attacks in the legal services industry have also highlighted the level of risk.

Questions about the management of systems, controls and training that are in place to address cyber risks continue to be refined by PII insurers. These are all issues that are within a law firm’s power to address and we encourage you to ensure this is on your agenda.

Some insurers are also keen to know if firms have a cyber insurance policy in place, and we have seen instances where this is a subjectivity of the PII quotation.

Cyber cover is important to ensure there is technical assistance and cover for a firm’s own costs should there be a cyber event that could otherwise be fatal to the business. However, firms should be aware that the cyber insurance market is becoming increasingly difficult. Some insurers have pulled out of this area of the market altogether and are not renewing policies. Others are insisting on certain minimum requirements such as multi-factor authentication (MFA), virtual private network (VPN) for remote access and segmented back-up solutions. We will provide more information on this in our Market Report.

Finally it is important to note that the amendment to the MTCs to address the issue of silent cyber is now effective and applies to those firms that renewed on 1 April 2022. We have reported on this previously and more information is available here. The SRA’s MTC amendment is not intended to change the scope of cover, but we have noticed that rather than adopt the MTC wording, some insurers have applied their own alternative endorsement. This carries a risk of unintended consequences. If a firm has a claim that involves a cyber-related incident and insurers decline cover, it will always be important to test that decision against the MTC wording as that will always prevail.

Finance

It is important that premium is paid or that finance arrangements are settled and in place by the renewal date. This will avoid difficulties and delays in getting insurers to confirm cover for the new policy period.

Finance providers continued to scrutinise applications for premium finance very carefully and the application and approval process took time. When this was combined with delays arising as a result of the issues relating to Russia, some firms were running very late to make the 1 April deadline.

We urge those firms renewing throughout the rest of the year to start this part of the process early. Even if you are still waiting for your PII quotation, you should ensure that your application for premium finance is complete and ready to submit. In some cases you might even need to look at submitting your application based on an estimated premium and subject to the formal quotation being received.

5-Point action plan for 2022 renewals

If your PII renewal is on 1 October, or an alternative date yet to come in 2022, our top 5 recommendations for action are as follows: