The impact of complaints and claims on professional indemnity insurance for firms

Being hit with a serious complaint or allegation of negligence can play havoc with a firm’s operations and finances. Senior management time which could be better spent on developing the business or serving clients will be lost managing the issue. What’s more a poor track record of complaints or claims can significantly increase the cost or availability of professional indemnity insurance cover. This Insight article considers the risk management {processes/frameworks/procedures}, professional firms should have in place to reduce the risk or severity of claims.

Professional indemnity insurance (PII) is a necessity for firms providing professional services. Governing bodies and regulators of lawyers, architects, surveyors, and others, require member firms to carry cover. Even where it is not a regulatory requirement, many clients insist on a firm having cover before doing business with them. 

But what happens to a firm with a poor record of claims and complaints?  The cost of securing PII cover may be prohibitive and insurers could be unwilling to offer cover at all. We know of professional firms which have been forced to close, simply because they could not secure PII cover at any cost.

In this instance, prevention is better than cure, therefore all firms should have robust risk management measures in place, which are regularly reviewed to reduce the risk of complaints and claims. These may include: 

Maintaining professional standards: 

It is important to ensure that all professional staff are fully qualified for the tasks they are undertaking, put in place measures to monitor and track Continuous Professional Development (CPD) requirements. 

Not knowing about a change in professional regulations due to inadequate training is no defence against a claim of negligence, therefore undertaking regular training and professional development of all staff is vital. This can include in-house training and ‘lunch and learn’ sessions as well as providing access to external professional training. 

Regularly review processes, policies and procedures:  

It’s easy to think ‘the way we have always done it’ is right, but changes in working practices and technological advances are constant, so a procedure which worked yesterday may be hopelessly out of date today. For example, the trend towards regular remote working has required significant changes in the way staff and their work are supervised and reviewed. Remote work which has not been carefully peer-reviewed could easily contain errors and omissions.

Undertake ongoing risk assessments/review business operations: 

It’s easy to assume because things are working, that they are functioning as well as they could, where as a failure in business operations could easily knock-on into a decline in client servicing standards.

Alongside policy reviews, undertake regular risk assessments of all business operations. For example, is the business’s cyber security as good as it could be – or are accounting, credit control and security systems fit for purpose? 

Review contracts and agreements/scope of business:

Make sure client agreements include clear details of the scope of work to be undertaken and beware of ‘mission creep’ where staff inadvertently undertake work outside the scope of the agreement. Consider including limitation of liability clauses where these are permitted under professional regulations.

Beware the standard template document which may contain errors or have been inaccurately or partially updated. We’ve all seen contacts where the details on page one have been updated, but later clauses have not been revised and include the name of a previous client or project.

In the event of a complaint, having a contemporaneous record of agreements and discussions will help to provide a defence. The absence of accurate records will make it hard for a firm to prove its actions, even when it was not at fault.

Record and review complaints:  

All firms will have complaints from time to time. The key to risk management is to respond quickly to a client’s dissatisfaction and put things right as soon as possible. Keep a record of all claims and how they were resolved; use the findings to improve client servicing, educate staff and change procedures to reduce claims. The detailed record will also be invaluable for the PII renewal process.

Manage expectations through regular client communication: 

We all know that we are more satisfied with customer service which is of a high quality and when people tell us exactly what is happening. Take this experience into dealings with clients, regular communication will increase satisfaction and can help to nip issues in the bud, which could otherwise become complaints.

Seek expert advice when required:  

None of us knows everything. If the business is faced with a client servicing issue outside its usual area of expertise, seek expert advice. For example, it is far better to seek advice from a solicitor about a contract issue, rather than guess and get matters wrong.

Secure comprehensive PII cover:  

Finally, no matter how good a firm’s risk management processes, things will go wrong from time to time. That’s where high quality PII cover comes in to underpin a business. And there’s no doubt a firm that can demonstrate high standards of risk management will have a wider choice of competitively priced PII cover.

If you would like to discuss this topic further and understand the implications on your business, please don’t hesitate to contact the team.