Here we are again - another lawyers’ renewal season. What can we expect? Well, it is not quite a case of same old, same old. After much lobbying, the minimum terms and conditions (MTC) have seen the most dramatic changes in years, most notably the closure of the assigned risks pool (ARP) in October 2013.
At the end of the 2012/2013 policy period, if a firm cannot obtain insurance on the open market, the insurers on risk will have to offer a three month extended policy period from 30 September 2013. During the first 30 days, the “Extended Policy Period”, the firm can continue to practise. By the end of that period, and for the remaining 60 days, the “Cessation Period”, without cover in place, the firm will only be able to work on existing instructions whilst it continues to find insurance on the open market. If insurance can still not be obtained, the firm will have to close, with the 2012/2013 insurer having to provide six years run-off cover in the usual way.
A further requirement on insurers for this renewal is the disclosure of its credit rating. Should this change during the currency of the policy, the insurer will have to notify the Solicitors Regulation Authority (SRA) and all firms which have taken out a policy with them.
So, what will be the effect on the solicitors’ professional indemnity insurance (PII) market this year? Well, many are predicting a turbulent renewal season as insurers factor in the changes. There are also a number of new entrants to the market – Axis, Elite, AmTrust, Independent Risk Solutions (IRS). The current predictions are that premiums will either remain flat or see a small rise, although innovative policies are being offered along with new schemes being developed by brokers for certain categories of law firm.
However, we see the bigger changes happening after 1 October 2013 and beyond. At that time, it is possible that additional new entrants will be attracted to the sector, safe in the knowledge that they will only be responsible for those they choose to insure. Over the coming years we would expect to then see a stabilisation of the number of those authorised actively participating in the market.
The SRA has confirmed that as of 1 October 2013 there will also be a variable renewal date, meaning that the single renewal date will be abandoned. It remains to be seen what, if any, changes arise as a result of this but we envisage that some insurers may seek to capitalise on the opportunity to take a bigger market share this renewal.
Insurers should also be comforted by better regulation through outcomes-focused regulation and the introduction of compliance officers for legal practice (COLPs) and compliance officers for finance and administration (COFAs) for each firm.
For law firms, all of these developments will inevitably lead to the hope and expectation that increased competition will lead to a reduction in rates. However, loss ratios will dictate this, and the importance of a respectable claims record will be paramount. Further, price is not the only factor. Firms are increasingly recognising that an insurer which understands the demands of the profession (particularly in the changing legal landscape) is one of a number of considerations, other than just price. The quality of the cover provided, claims experience, service and financial stability are all factors to throw into the mix when seeking insurance.