Professional indemnity insurer Enterprise Insurance (Enterprise) has gone belly up. The Gibraltar-based firm has been a central insurer in the legal professional indemnity market and insures many of the UK's law firms. However, in July, the Gibraltar Financial Services Commission ordered the unrated insurer to stop writing new business after it was declared insolvent and entered liquidation. This collapse is believed to affect 50 law firms in the UK. However, the problem is in fact more widespread. Enterprise has been in the professional indemnity insurance market since 2011 and still provides run-off cover for many more practices that have since closed down.
Policyholders have been advised that their policies will remain in play for the time being but more information will be provided in due course. While the UK Financial Services Compensation Scheme (FSCS) has confirmed it will cover UK policyholders if Enterprise cannot meet the cost of claims made against it, FSCS will only do so if they meet certain criteria (such as having a turnover of less than £1m). But the headache does not end there. Under Solicitors Regulation Authority rules, law firms are forced to find alternative insurance cover within 28 days or be forced into the assigned risks pool (ARP), in which policy rates are charged at a premium. If firms are still unable to find affordable cover within three months, they will be forced to cease trading because they do not carry adequate professional indemnity insurance.
Back in September 2013, reports estimated that 1,300 UK firms were put at risk after Latvian insurer, Balva, was put into liquidation. Initially the Latvian Board of Financial and Capital Market Commission (FCMC) assured the market all was well, as all Balva’s insurance policies would simply be transferred to its underwriter, Berliner. However, when Berliner backed out, declining to cover the Balva policies, panic hit the UK legal market. Berliner's exit was described by one broker as the “biggest hand grenade into the bottom end of the market for many years.”
With an already vulnerable economy and the uncertainty created by Brexit, this event will be a cold cup of tea for the UK legal market.