What you need to know about the SRA Code of Conduct and PII renewals
Professional Indemnity Insurance (PII) renewal is one of the most important dates on the legal calendar. Not least because it is a disciplinary offence for law firms and solicitors to practise without PII insurance. But over the last few years, renewal season had become increasingly challenging. As well as rising premiums, there was a reduced appetite for risk from the insurers, with many reportedly withdrawing or reducing from more risky areas of law.
The good news is that today’s PII market has stabilised. According to a report from Howden Group, in April 2023:
- The increase in the average rate was low (single digits)
- The main driver for the increase in premiums was an uplift in gross firm fees as opposed to insurers increasing their rates
- There was a pool of solid A-rated insurers with new capacity expected for October 2023
- Insurer appetite is a great deal more positive than it has been for some time.
Nevertheless, despite the positive outlook, the report advises firms to think about the steps they can take to alleviate any concerns from the underwriters. This advice is consistent with that provided by the Law Society. In short, law firms should take proactive measures to ensure a hassle-free process and the best possible premiums.
SRA code of conduct and PII
To prepare for PII renewal, firms must examine their risk profiles and demonstrate an awareness of the risks they face in line with the type of work they perform. But there is another vital reason why firms must have a sound grasp of their risk profiles.
Under the SRA Code of Conduct, solicitors/firms must take out indemnity insurance that is “adequate and appropriate”. The level of insurance needed to comply with the Code will differ from one solicitor or firm to the next, and a robust risk assessment will help to determine whether the insurance taken out meets this criterion.
The SRA has published guidance notes to assist with this, but things to consider when determining whether the limit of indemnity is correct include:
- The client profile
- The number and type of client matters
- The value of the work being done
- Any historical/ongoing exposure
- Any potential loss and the firm’s liability for this loss.
This is not a comprehensive list.
Any investments made to improve how a firm manages risk will always be looked at favourably by the insurers and the SRA. This includes investing in operational improvements, risk reviews, the ability to spot and flag potential problems, a clear audit trail, and the ability to deescalate and stop recurrences.
With the looming PII renewal season, law firms must also ensure that all policies and procedures are in place and that they adhere to the latest Codes of Conduct. While a consultation into the latest SRA Standards and Regulations (introduced 2019) ended in March of this year, we have yet to see the outcome of this engagement process. However, in April 2023, the regulator did amend its Codes of Conduct in respect of ‘fair treatment’. We provided more information about the new requirements.
At Legal Eye, we help firms achieve the most favourable PII premiums possible through outsourced, independent file reviews, complaint handling, risk and compliance gap analysis, and other complementary services. For a 360 view of your business risk and to help you prepare for your PII applications, call 020 3051 2049 or email [email protected] today.