So, here we are again – renewal season. Have our predictions ahead of last year’s renewal come true?
Rather like Christmas, the solicitors’ renewal season seems to start earlier each year. This year, solicitors’ insurance rarely seems to have been out of the legal news. This has largely been down to the changes to the market that will come into effect from 1 October 2013.
The more dedicated of you will know that last year we predicted increased competition and lower premiums as the Assigned Risks Pool (ARP) shut its doors for business, coupled with better regulation via COLPs and COFAs.
Unfortunately, the reality is a mixed picture. Whilst some insurers have expanded their offering (AmTrust now insures 4-10 partner firms; Aon has a scheme for 1-3 partners with QBE; and the Law Society has endorsed a new scheme called Chancery Pii, which provides direct access to A rated insurers for 1-4 partner firms), some insurers have withdrawn from the 1-3 partner market or signalled pulling out of firms which rely heavily on conveyancing. What is perhaps a little more surprising is the lack of new entrants with significant capacity to the market.
Equally, the COLP and COFA roles have not had the impact predicted (yet). This has not been helped by the fact that over 1,200 COLP and COFA nominees failed the automatic verification exercise to check their suitability.
So, what are the other themes coming out of this year's renewal?
There is increasing focus on the financial status of insurers following the high-profile collapse of Lemma in October 2012 and Balva in June 2013. Balva was an unrated insurer that covered seven per cent of the solicitors market in 2012/13.
The market continues to experience instability with the recent announcement that German insurers Berliner has signalled its exit from the sector.
The reality is, however, that cover from an unrated insurer may be all that is available for some firms due to price pressures, or the perceived risks they present. Certainly, 2012/13 has been tough, with some high-profile firms collapsing (Cobbetts, Blakemores and most recently Challinors).
There has been little sign that the end of the common renewal date is having much effect. This is unsurprising, as it was always likely to be a slow-burner. It is generally thought that the single renewal date intensified the market cycle which can lead to lower premiums in a "soft" market and higher premiums in a "hard" market. Whether that will change in time remains to be seen.
The economic recovery remains fragile. There is increased competition from Alternative Business Structures and changes to legal aid and funding arrangements have hit many firms, the impact only now starting to be seen. Insurers are naturally studying carefully the financial health of potential law firm insureds, because insurers will naturally want to avoid giving six years of run-off cover if they can help it. This is not an issue that affects just smaller practices, with predictions recently in The Lawyer suggesting that at least five "major collapses" of UK law firms will come about during the next five years. Worrying rhetoric.
The lower premiums predicted for this year may prove elusive for all those outside the top 100 firms. After all, without a significant number of new entrants to the market, how likely is it that premiums will fall?