Increased Indemnity Costs and Personal Guarantee Demands to Threaten UK Law Firms

Most smaller UK law firms have done incredibly well to ensure continuity during the pandemic. However, since the SRA Compliance Conference in November 2021, firms have become concerned about potential increases in professional indemnity insurance (PII) costs. According to recent reports, they might also have to sign a personal guarantee as per the insurers’ demand.

This will place a significant amount of additional burden on the shoulders of solicitors and law firm leaders as they’d be forced to put their personal assets, including their homes, at risk in case of failure. The UK Legal Services Board believes that these developments could drive many firms out of business and identifies the PII issue as one of its key priorities for the new season.

Rising Premiums

Professional indemnity insurance has become a rather tricky subject in recent years. This is mainly due to the annual rise in premiums and the declining number of insurers offering coverage to smaller UK law firms.

According to the recent Howdens market report , in 2021, premiums increased by 27% on average. Before that, in October 2020, they rose by 21%, up from  17% in April 2020. This trend is set to continue in the April 2022 renewal season, with firms expecting another massive rise. From the insurers’ viewpoint, the upward trend is mainly due to the massive increase in the number of claims since the start of the pandemic.

Apart from rising premiums, primary limits were reduced in 2021 – adding to solicitor’s woes. Some insurers even opted out of high-value claims unless law firms paid a higher premium.

Personal Guarantee Demands

Unfortunately, rising premiums aren’t the only or the biggest concern worrying SME law firm owners. Due to the increased scrutiny caused by severe claims, insurers are demanding personal guarantees. With a significant drop in the number of insurers in the market, solicitors and firms may have no choice but to put their personal assets on the line for coverage.

In the event the business fails to meet repayment obligations, the insurance company can use those assets to recover the dues. This growing demand mainly stems from the minimum SRA terms and conditions that require insurers to provide six years’ run-off coverage, even if the firm doesn’t fund the run-off premium.

Pandemic Loans

Since 2020, over 39% of UK law firms have opted for government-backed pandemic loans for survival. Nearly 59% of firms used the furlough scheme to support, retain, and continue to pay employees. However, around 67% of these firms haven’t refunded the money to the government, meaning they’re still in a considerable amount of debt.

An increase in PII costs and financial pressure could force these firms to shut down their operations and reduce the number of legal professionals in the market – potentially rupturing the legal system.


With February almost in the rear-view mirror, we’re just over a month away from the April 2022 solicitors’ professional insurance (PII) renewal season. With all the latest developments, UK law firms should start looking for the best provider and premium in the market. More importantly, they should get ready to accept the fact that many insurers will require them to sign a personal guarantee to secure cover.

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