Professional indemnity insurance (PII) is among the major overheads UK lawyers and law firms incur in their practice. Although we’ve only just entered 2022, the April 2022 Solicitor’s PII renewal season is rapidly gaining upon us. More importantly, there is a high churn rate of insurance companies entering and exiting the market. Therefore, now is the time to look for the best providers, PII premiums, and payment solutions to cover their properties and personal assets, should their practice fail. With new COVID-19 variants making headlines and causing business disruption, solicitors will likely be seeing an increased number of professional negligence claims.
Market Overview and Latest Developments
The solicitors’ professional indemnity insurance market is gradually becoming more volatile every year. This is mainly due to the minimum terms required of insurers by the SRA, causing an unprecedented level of resentment. As a consequence, many traditional PI insurers are avoiding insuring solicitors.
With fewer players in the market, the level of competition is drastically changing, and the cost of insurance is consistently on the rise. In terms of revenue, the PII market is worth over £250 million in annual premiums, thanks to over 11,000 law firms practicing in England and Wales.
Big Rise in PII Premiums
With annual premiums rising over 27% on average across all solicitors firms around the UK, there’s been a massive decline in the number of insurers offering cover. This trend is set to continue for the April 2022 renewal season, especially after primary limits were reduced to £2 million in 2021.
SME Law Firms Face Demand for Personal Guarantees
Unfortunately, rising PII premiums isn’t the most significant challenge SME law firms face. Another trend developing in the market is a growing demand for personal guarantees by certain insurers that put solicitors at even more risk than before. This is essentially a written promise by the director of a law firm guaranteeing they will personally repay any debt owed by the business even if they have to use their home and other personal assets to do it.
Personal Guarantee Insurance Becoming Popular
In response to the growing demand for personal guarantees by insurers, a new solution has emerged in the market designed specifically to help protect law firms from losing their collateral in case of an unfortunate event. Personal Guarantee Insurance (PGI) is an annual policy providing solicitors and SME law firms with the coverage required to repay a debt when they don’t have the available cash resources.
With personal guarantees becoming a trending requirement, solicitors are preparing for the likelihood of this solution becoming a mandatory requirement to balance the risk of both parties. So, any firm looking to get coverage should ask their insurance broker to confirm if a PGI will be needed as well as the run-off premium to fully comprehend what’s at stake in case their business faces financial turbulence.
Cyber Insurance Requirements
Lastly, conveyancing firms may be forced to buy stand-alone cyber coverage as the SRA recently clarified that the consumer protection afforded by PII for losses due incurred due to Cybersecurity threats will only cover clients and third-party applications. However, cyber insurance becoming mandatory will have no impact on the minimum terms.
To say that a lot is happening in the professional indemnity insurance market would be an understatement. What we know for sure is that PII remains an important policy for law and conveyancing firms looking to protect their financial assets from losses. With April 2022 on the horizon, firms need to sit down and thoroughly assess their risk and look for the best coverage available in the market.