When firms went to renew their professional indemnity insurance on October 1st, around three quarters found that premiums had risen on average 20 per cent, with firms with turnovers of £50-£100 million seeing increases of around 40% according to The Law Gazette. This has come at a time of increasing uncertainty for firms, after the industry enjoyed a relatively ‘soft’ insurance market, says Mishcon de Reya’s Head of Cyber Joe Hancock. In our recent webinar, Thirdfort spoke to Joe and Teal Compliance’s Amy Bell about how firms can ‘de-risk’ their processes in the current climate, and it’s no surprise that the conversation turned to the mitigation of rising insurance costs. While some increase in PII premiums is unavoidable (as they’re not wholly based on firms’ individual claims history), there are some measures you can take. We take stock of these below.
What factors have caused the increase?
Whilst COVID-19 has acted as a catalyst for the rise in premiums, a ‘hardening’ insurance market has been on the cards for quite some time, Mishcon’s Joe Hancock told Thirdfort.
The uncertainty of the pandemic is also coupled with ‘a rising volume of claims against conveyancers who work on contentious property developments’, says The Financial Times. The reason for this increase could be a rise in mistakes made now lawyers are working from home. A firms’ individual claims history can have a detrimental effect on their premium costs for up to 6 years - which is all the more reason for firms to evaluate and test their current processes.
Insurers becoming more wary
In our webinar, Amy also recognised the growing nervousness in the underwriting industry, due to the financial uncertainty of the current climate – if firms fold, insurers will have to provide cover. This goes some way to explain the rising costs filtering through to firms’ premiums. This reduced appetite for risk comes as a result of insurers’ fears of a potential recession, as historically ‘economic downturns often coincide with a rise in claims.’
What should firms do to minimise PII premium increases?
Collect data – and do it now
'The first and most important point is that firms should already be talking with brokers about finding cover. If you have not yet done so, make it a priority now,’ advises Nick Gurney-Champion, Chair of the Law Society’s Professional Indemnity Insurance Committee.
'Insurers’ more cautious approach means that firms will be expected to provide much more information up-front on this renewal, including details about risk management, the firms’ finances, evidence of ongoing profitability and continuity planning,’ says Nick, highlighting the necessity for firms to be prepared for much more exhaustive requirements this renewal period. In their conversation with Thirdfort, both Amy and Joe circled back on this point – having the correct data to hand is key for firms who want to minimise their insurance costs. ‘The best thing firms can do is to start collecting data for their next renewal now, proving that the changes that needed to be made have been put in place,’ notes Amy. ‘Whether this is to Cyber, training, policies and procedures for supervision or to work allocation – make sure you can prove [to underwriters] that all this works as you intend it to.’
Amy also shines a light on the nature of this extra data, explaining that this could take the form of 'financial stability info’ and ‘adjustments made to mitigate the risk of working from home’, as well as emphasising the importance of testing these procedural changes. As a rule of thumb – if firms can’t prove to underwriters how they know measures are working to mitigate risk, they’re left vulnerable to further premium increases.
Thirdfort provides firms with a robust, secure solution that allows firms to mitigate risk and remain compliant with industry regulations. To learn more about how Electronic ID Verification solutions like Thirdfort can give your firm an edge, view our recent article here.