Recent events confirm that insurance market conditions are changing, beginning with the intervention of Lloyd’s of London last year. Their thematic review highlighted the poor underwriting performance of PII generally and called for remedial action to be taken across their syndicates. This has filtered across to all insurers, and there are definite signs of change, with some underwriters leaving the market and others warning to expect increased premiums.
Over the years I have produced various articles helping law firms to approach the renewal of their Professional Indemnity Insurance (PII). The exercise is more important than ever this year, because where recent renewals have been relatively straightforward for most firms, with plenty of “A” rated capacity and no significant overall movement in premiums, we now need to brace ourselves for a more difficult time.
It is therefore more important than ever that firms get their house in order and pay careful attention to the renewal process. Having sounded the warning, below are some pointers to assist firms to navigate the more troubled waters we are sailing in as firms move towards their next renewal:
At the time of writing, it’s too late to start early for the 1st April renewals! By now you should have completed your part of the paperwork and be talking to your broker about terms and options. If not, you risk insurers being “full” by the time you submit your form. Most have finite capacity and may close the doors at some stage prior to the end of March. Accordingly, we are not expecting premiums to get cheaper for those firms that leave it to the very last minute. Your firm’s future may depend on finding an insurance deal, so don’t leave it to chance.
Be in control
Deciding which broker to appoint is key to you being in control. There are far more brokers looking to act for you than there are underwriters looking to insure you. The fact is, there is a small minority of truly specialist brokers who can tick sufficient boxes to be deserving of your interest. You have to decide what the boxes are, and how to grade them in relative importance, but typical examples would include:
- What is their range of direct access to insurers?
- Claims capability – are they a post box, or a cradle-to-grave advocate?
- Do they offer year-round support for mid-term changes and queries, and do they charge administration fees?
- Do they provide regular and topical information relevant to solicitors’ PII?
Ask any prospective broker to disclose in writing which insurers they intend to approach and why they consider that those markets would be suited to your firm. Will those approaches be made directly or by using another broker’s facilities? There is no point in your proposal form being submitted to an insurer if the profile of your firm does not fall within their appetite. If you are instructing more than one broker, then take care to establish a clear brief as to the insurers each one is approaching. Underwriters tend to dislike multiple approaches from the same firm via different brokers and this should be avoided.
It is also important to agree clear timelines with your broker. If quotes are not delivered according to what you have agreed, ensure you find out why and whether the strategy you have agreed needs to change.
In addition to understanding the current state of the market with regard to premium, it is important to understand any current issues that are of concern and focus for underwriters. This will assist you to shape your renewal campaign and the information you want to present to underwriters.
New questions in proposal forms are always indicative of recent issues that are concerning underwriters, and your broker should be able to advise you on the issues of concern generally and any sensitivities that are unique to particular underwriters. Ensure that you have this dialogue with your broker. It can change how you present your renewal submission.
Proposal form diligence
We all agree that proposal forms seem to get longer every year and are time consuming and tedious to complete. But they are important. PII is a significant spend for your firm and your proposal form is essentially your “shop window” – so it needs to be the best it can be. If you have still to complete your proposal form, the following points are important:
Ensure the form is legible and complete – you are competing with many other law firms for an underwriter’s attention. Complete it in draft in the first instance and check it carefully. Use the electronic format if at all possible. Include any supplementary information in a style that can be easily assimilated, with a clear reference to the numbering of the associated question on the proposal form.
Ensure that the numbers add up
Underwriters don’t mind if you round off your income split between activities to whole numbers or calculate it to three decimal places – just as long as it adds up to 100%.
Up-to-date claims records from previous insurers should be attached to the form, including those for any prior practices. The number of years you need to go back varies from one insurer to another, although six years is a good starting point.
If your firm does not record information in a way that corresponds with questions that are asked, then talk with your broker about providing the information that you do record. Provided it addresses the issue that the insurer is interested in, then this should not be a problem.
Take care with Yes/No questions
The answer the insurer is looking for is usually obvious. If it clearly requires a “yes” answer and you are unable to give that, don’t worry. It might be that you can give an explanation that will still satisfy the insurer. In that case, you should put a note on the form to refer the insurer to your supplementary pages where the information can be found.
If your claims record shows significant claim payments or reserves above your excess, 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 points where you feel that the hard facts on the claims prints do not truly reflect actuality can help. If you have been able to learn from claims, close loopholes, tighten procedures, introduce new systems or in any other way alleviate the chance of recurrence, please make this very clear in your submission. Underwriters will look for this if your claims record is less than stellar.
Be your own best advocate
Firms often complain that the proposal form doesn’t give a complete picture of their business, or allow them to demonstrate why their firm is a better risk than others. That is a fair comment and we encourage firms to include a letter or a separate note setting out information about the firm that doesn’t emerge from the answers on the proposal form. Be concise – two to three pages is enough. Put yourself in the shoes of your insurer and focus on issues that are likely to make a difference. For example:
- the quality and culture within your firm
- risk management initiatives within the last twelve months
- particular specialisms within the firm
- details regarding higher risk areas of practice that make that work lower risk in your firm
- any details regarding your client base that impact positively on risk
- short and medium term aspirations
- how the firm interacts with the local community, charities and the like.
Get funding in place
Think about your premium funding now. No other class of insurance requires an insurer to take on the credit risk that accompanies distressed run-off cover, and insurers will want to have the premium in their hands, or at the very least know that it is guaranteed to be paid, before irrevocably binding cover. You do not need to finalise a deal to the nearest penny to be able to start enquiries about funding.
At this point I also sound a note of caution regarding a common misconception that it is perfectly acceptable to rely on the Extended Indemnity Period (EIP) to provide “extra time” to finalise arrangements. The EIP requires your existing insurer to continue to provide cover for an initial period of 28 days, if you have not finalised your renewal when your policy expires. Under the SRA Indemnity Insurance Rules 2013 a firm must notify its insurer and, more importantly, the SRA, of entering the EIP “as soon as reasonably practicable and in no event later than five (5) business days”. You really do not want to attract the attention of your regulator in this way. You are also at risk of renewal terms being withdrawn or amended prior to cover being bound and other insurers considering the firm’s entrance into the EIP in a negative light.
After the deal is done, don’t switch off. No matter how early renewal is agreed, ensure that you continue to disclose any claims or circumstances that emerge. If you are changing insurers this is important to ensure that late notification of a circumstance does not compromise your relationship with your new insurer. Even if you are renewing with the same insurer, you can expect to face difficult questions if matters are notified late, and a more tense renewal negotiation next time around. Any other material information or changes should likewise continue to be disclosed.
At the end of the day remember that your broker is there to support and guide you through the renewal process. Please contact us if you would like to discuss how Howden can assist you.
Written by Chris Robinson ACII - Associate Director, Howden PII.
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