Solicitors' PII Renewal 1 October 2020 - Progress Report

This is a challenging renewal for law firms given the combination of a hard market and the impact of Covid-19. We tell the story so far.

The majority of law firms still renew their PII on 1 October and are currently engaged in the process of completing proposal forms and sourcing quotes. Firms that renew their PII on other dates should also keep a close eye on developments, so that they know what to expect when their renewal is due.

Slow start

It was a slow start with insurers taking time to settle changes to their proposal forms and produce questionnaires relating to the impact of the Covid-19 pandemic. Some insurers have also taken more time than expected to settle their rates, which has likewise contributed to delays.

Firms that have not yet completed their proposal form should do as a priority. It is important to remember that the future of your firm depends on your PII renewal.

Longer Proposal Forms and New Covid-19 Questionnaires

Proposal forms are longer this year and are taking more time to complete. We have seen an increase in questions directed towards buyer-funded developments and other property investment schemes. The claims activity arising from these transactions is an issue for insurers and they are keen to understand the extent to which firms have engaged in this work.

Most insurers have also introduced additional questionnaires relating to the impact of Covid-19. The questions cover issues such as the effectiveness of contingency plans, risk management initiatives adopted to respond to remote working, staff arrangements, cyber security and the financial position of the firm. Ensure you allow enough time to gather the required information.

Focus on Financial Stability

Insurers are particularly concerned at the prospect of firms failing in the next 12 months which will trigger the requirement to provide run-off in the event that a successor to the firm cannot be found. They are obliged to provide the cover, whether or not the firm is able to pay for it, and were not able to persuade the SRA to change this requirement prior to 1 October. Firms can expect that the financial information they provide will be scrutinised more closely than it has been historically. In some instances principals might also find that a quote is subject to them providing personal guarantees in relation to the run-off premium.

Significant Increases in Premium

As far as premiums are concerned, this is the hardest market for solicitors’ PII since the profession moved their insurance arrangements from the Solicitors’ Indemnity Fund to the open market. Firms that have yet to receive a quote should prepare themselves for an increase in premium.

The Law Society president, Simon Davis, has recently been quoted in the legal press saying that firms should expect increases of up to 30% [1]. However it is not a case of “one size fits all”. Every firm has its own unique characteristics and premium increases will differ depending upon issues such as a firm’s areas of practice and claims history. Insurers will also differ in the rate increase that they need across their portfolio. It is important for firms to engage with their broker to discuss the potential premium increase to expect.

Premium increases are also hitting the excess layer (top-up) market. There are also fewer insurers who are prepared to provide this additional cover and care is required to ensure that the policy wording gives a suitable breadth of cover.

The Law Society and the Solicitors’ Regulation Authority are acutely aware of the financial difficulties that some firms are facing. The chair of the Law Society PII committee has even gone as far as suggesting that financially challenged firms consider closing their practice rather than renewing their PII [2]. The rationale for closure is that the run-off costs will be less now than after renewal, given that they are always based on a multiplier of the expiring premium. The Extended Policy Period and Cessation Period, that are a feature of solicitors’ PII policies, also provide firms a total of 90 days after their renewal date to arrange an orderly closure.

Difficult to Access Alternative Quotes

Insurers are also demonstrating a reduced appetite for new business, particularly when it comes to firms that engage in conveyancing work - which is the majority of the profession. Insurers are nervous, due to both the existing claims from conveyancing work and the prospect of further fall-out following a crash in the property market as a result of Covid-19 and Brexit. Some insurers are not prepared to consider new business cases where the firm undertakes more than 20% conveyancing. This means that it can be very difficult to source an alternative quote for a firm that wants to compare the terms offered to them by their existing insurer with a quote from another insurer.

More Rigorous Scrutiny by Premium Funders

It is expected that there will be an increase in firms wanting premium funding arrangements, given that there is more pressure on cash-flow than there has been historically. Premium funders are also asking more questions as a result of Covid-19 issues and firms should expect that there will be rigorous scrutiny in advance of funding being agreed. Again it is important that firms allow enough time for this part of the process and start to consider their options as soon as possible.

As a broker we are acutely aware of the difficulties that the profession faces with regard to the current PII renewal. We recommend that firms stay engaged with their broker, respond promptly to any requests for further information and ensure that they provide insurers with the best possible presentation of their firm.

As discussed above, financial stability is a key issue and firms should ensure that they engage with the appropriate professionals if assistance and advice with regard to the financial position of the firm is needed.

If you would like to discuss your PII renewal, please call us on 0203 811 0732 or alternatively complete our contact form and we will get back to you.

[1] www.lawgazette.co.uk/news/firms-told-to-brace-themselves-for-october-pii-hike/5105419.article

[2]  www.lawgazette.co.uk/practice-management/pii-renewal-or-run-off/5105510.article