Law firms may face significant challenges renewing their professional indemnity insurance (PII) as nearly 40 percent of insurers consider exiting the market.
A new survey by law firm Browne Jacobson and the International Underwriting Association (IUA) revealed that following the recent Discovery Land v Axis case, 38 percent of insurers are contemplating withdrawing from the solicitors’ PII market. This case centered on the ability of a solicitors’ insurer to deny coverage for a claim due to dishonesty and the operation of the aggregation clause in PII policies.
The survey highlighted that this case has raised concerns within the insurance market for solicitors due to its restrictive approach to aggregating claims for the limit of indemnity under the Solicitors Regulations Authority’s (SRA) minimum terms and conditions (MTC).
PII coverage is mandatory for regulated law firms or practising solicitors as per the SRA’s rulebook. However, premiums are costly. According to a recent SRA report, PII premiums for law firms typically range from three to nine percent of annual turnover, with a median value of five percent. In contrast, chartered accountants pay a median premium of two percent or less, and licensed conveyancers pay around three percent.
Ed Anderson, a PII partner at Browne Jacobson, noted, “The results of the survey are very concerning for the profession and for clients.” He explained that solicitors already pay significantly more for their PII compared to other professionals, with clients ultimately bearing the cost.
An accountancy firm, Hazlewoods, found that 65 firms had to close down in 2019/2020 due to difficulties in obtaining PII cover. This number dropped to 34 in 2022/2023 as premiums decreased last October.
Despite this, 69 percent of survey respondents indicated they would definitely change their underwriting strategy this year. More than half said their pricing would increase, and a third stated they would write less primary layer business.
Anderson pointed out that the MTC’s restrictive nature is the primary reason for the additional cost. He suggested that a small change to the MTC, such as adopting an ‘originating cause’ aggregation wording, could significantly impact pricing and insurer appetite without compromising client protection, as many firms purchase excess layer insurance.
He concluded, “Amending the MTC is the single most effective change the SRA and the Legal Services Board could introduce to reduce the cost of legal services to consumers.”
Read more about rising insolvencies driving a surge in professional indemnity claims against accountants and related topics.
