Understanding your 2021 PII renewal
Published: Monday, 2 August 2021
The insurance market in 2021 is different.
Are you leaving it to chance or ready for the change?
Renewals are more expensive and more challenging
Until 2019, it was a straight-forward procedure for many legal firms to renew their Professional Indemnity Insurance (PII) cover, but I am afraid to say that that has changed. If you are renewing in 2021, it is inevitable that you will find things tougher and less straight-forward than you have for some time. Premiums have increased as competition for business has decreased. Gone are longer term policies and automatic renewals.
Why is that?
In line with many business sectors, Insurance has found trading conditions over the last few years tough as claims escalated from a variety of sources and the legal sector, specifically, has experienced rising claims. It is also expected that claims will follow as we face the fall out of the unique circumstances that the Covid pandemic has brought. This has led to a restriction in the number of insurers willing to cover Solicitors both at primary and excess layer level, and an increase in pressure from Lloyds to underwrite profitably.
It is therefore a time to take a harder look at how you will renew this year and the procedures necessary to minimise the impact on your firm.
You need to understand how the insurance market really works and to present yourself in the right way, to the right underwriters, through the right channels.
How should you approach your renewal?
Number of Partners, Directors or Members
First of all, do you appreciate just how much difference the number of Partners (Directors or Members) makes to which brokers you should work with? For firms below ten partners there are multiple arrangements and “exclusives” in place between brokers and insurers. These can change depending on how many partners you have. Over ten partners and you'll need a different approach. Do you know who has these exclusives and are you accessing all the underwriters you need to?
Insurers have different appetites depending on the type of work you do. For example, conveyancing is generally accepted as one of the most risky and exposed areas of legal practice. As a result, some insurers will not insure a firm that does ANY conveyancing at all whereas others may have a cut off point that could be 20, 25 or 50% of your fee income. Cross this point and it will be a “NO”. Do you know who these insurers are, and do you monitor how your work splits may be changing?
Insurers like specialists. You have developed a real understanding and knowledge within your field that sets you apart from the rest and many will reward you for this. Are you making sure that this expertise comes across when presenting yourselves to underwriters?
Do not assume that an insurer will have the same in-depth knowledge as you do. You should use the renewal presentation as an opportunity to educate and re-enforce the message that you and your firm really understand your area of the law. Remember to cover the potential pitfalls as well as the positives – underwriters will respond to those that can display knowledge of where claims can come from and how they are to be avoided.
Covid has brought huge changes to all, and the Legal sector is no exception, both financially and structurally. The same is true of the insurers you are trying to impress. The underwriter that is looking at your firm will be looking for you, and the managers of the firm, to explain how Covid has affected your working practices. For example, how is supervision of staff and colleagues effective when people are working from home and not in an office? How are you ensuring that all work is compliant and accurate?
Further, how have you been impacted financially? Insurers have a vested interest in the long-term viability of your firm because they are the ones that will have to insure you in run-off for a further six years if your firm fails – and that is true even if the premium is not paid. So, they will want to know how you have survived and what the picture is for the future. It may not matter that income is down or that staff had to be furloughed. These can be seen as natural and prudent in ensuring your business is still here and ready to bounce back.
Are there any rumbling problems that could cause you uncertainty or that may need alternative solutions? A large claim, perhaps, or a disciplinary matter. If this is the case, disclose this to Insurers sooner rather than later. Insurers are not as understanding as perhaps they once were and the consequences of hanging on and hoping for the best could be severe. A better approach is to be proactive in realising the potential danger and mitigating the impact. Put a fallback strategy in place should your underwriter penalise you through unaffordable premium increases or, worse, declining to renew.
Presentation of your risk
The presentation is key - so true and yet so often overlooked. Firms that take the presentation of their risk seriously, and as part of an ongoing dialogue with the underwriter, gain long term stability in both premium and Insurer relationship. Do not just rely on the proposal form, or the additional forms that you will receive covering specific work areas or COVID, to give the full picture of your firm. These give the bare bones only and you should go beyond this in explaining how these issues affect your firm, outlining how you identify and manage the risks involved.
Finally, and I appreciate you have heard this many times before, do not leave this renewal late but plan several months ahead. Work with a broker that will explain the options you have in full and with honesty. A little upfront work will help you take back control!