Professional indemnity insurance renewal: Advice and tips for law firms

Buying and renewing professional indemnity insurance can be a loathsome process. Lengthy, costly and even more stressful in the light of Covid’s impact.

Although 1st October is no longer the set-in-stone date for professional indemnity insurance (PII) renewal, approximately 75% of law firms still review at this time.

If you are one of those law firms, read on for Quill’s advice on how to make your PII insurance renewal process as smart, easy and cost-effective as possible.

#1. Ensure your business documents are in order

When requesting insurance quotes, it’s likely you’ll be asked to provide supporting documentation such as a business plan, financial projections and senior personnel’s CVs, to name a few. For a helpful outline, visit The Law Society website. Get organised at least 30 days before you want to renew with organising all your crucial paperwork.

#2. Use your registered company name

As an appendage to #1, the name on your insurance documents should match the name you’re registered as with Companies House. This is especially important during start-up when you’re getting all your ducks lined up, but it’s still important thereafter in order to keep your operations above board always.

#3. Create the right impression

Insurance providers will assess the professionalism and quality of your practice (in other words, if they’ll agree to take you on) from the level of detail and presentation of data in your proposal form from which you’ll obtain a quote. Providers may also view your website. It’s worth spending time on form filling and website updating to create a strong impression from the word ‘go’.

#4. Don’t shop around too much

As David Gilmore, Director at DG Legal, mentioned in our  ’15-step guide to starting your own law firm’:

“Don’t be tempted to shop around too much for this insurance. If you approach a number of brokers, be aware that these brokers will often send your proposal to the same firms. The underwriters at the insurance companies could get fed up of seeing the same proposal form and sometimes refuse to quote. Some brokers are better than others. The best plan is to act early and ethically and in your best interests. Don’t leave things too late and risk not having enough time to obtain a good quote.”

#5. Allow sufficient time to secure cover

Following on from #4, it’s estimated that an average quote takes a fortnight. Factor in extra weeks to prepare the aforementioned pre-quote paperwork and additional time to analyse, compare, decide and finalise your cover from quotes received, and the whole process will take around twelve weeks. The 1^st October deadline comes round increasingly quickly and the solution to successful PII application is proper preparation. If you haven’t yet started the ball rolling, there’s no time like the present.

Fail to meet your renewal deadline and you’ll enter a 30-day extended policy period (EPP) and thereafter a 60-day cessation period (CP) where you must stop taking on new instructions. Don’t let yourself get into this position. Not only will it cause problems right now, there are consequences for the future too as insurers will look upon your application unfavourably if you’ve ever been in EPP or CP.

#6. Understand before you commit

Make sure you digest fully and understand the insurance cover on offer, minimum terms and policy exclusions before you sign on the dotted line. PII is one of your biggest financial outlays and one of your foremost obligations. Perform your due diligence and get it right!

#7. Expect fee increases

Be prepared for a price hike… potentially a pretty big one. Some blame the strain that’s been placed on insurers during the Covid-19 pandemic and others say that it’s because there are fewer insurance companies in the market. Although we understand the economic pressures on firms, it’s important to not make PII purchasing decisions based on price alone. Most firms expected a 5% uplift but it’s not uncommon to see anything from 17% (per Legal Futures) to 50% (per The Law Society Gazette) or even higher. All the more important that you build these recurring costs into your cash flow forecasts.

#8: Bear in mind your specialisms

The work you do will impact your insurance quotes as they’re dependent upon the perceived level of risk. These risk levels vary greatly from area to area. These are the risk categories as a guide:

• Low risk – adjudication, agency, children, criminal, expert witness, immigration, officers and appointments
• Medium risk – defendant litigation, employment, matrimonial, personal injury and town planning
• High risk – commercial litigation, estate agency, financial advice, intellectual property, probate, trusts and wills, and tax planning
• Very high risk – conveyancing and commercial (public and non-public companies)

#9. Get your tech sorted

One of the reasons for higher PII premiums cited by brokers is the supposed rise in claims resulting from mistakes while solicitors have been working from home. According to the Solicitors Regulation Authority (SRA), cyberattacks increased by 400% in the first weeks of lockdown and comprise 75% of all reported crime in the UK (see the SRA’s website). Devious criminals have exploited weaker cyber defences of unwitting work-from-homers. Homeworking is going nowhere. Hybrid working, comprising a combination of home and office, is the new norm.

So, review your current systems, assess their robustness and look at alternative or add-on solutions to address any shortfalls. This could be anything from anti-money laundering checks at the onboarding stage right through to secure online payment tools upon matter completion. Our ‘Guide to the essential smart law firm technology in 2021’ is a handy starting point.

#10: Use run-off insurance if you close your business

If you choose to stop trading, run-off cover for six years is a mandatory requirement. Your insurer will probably provide this cover but it’ll be expensive. Be armed with all of the facts and figures before deciding whether or not to shut up shop. This should always be a very last resort.

Helpful links:

• The Law Society’s PII buyers’ guide
• Solicitors Regulation Authority’s PII practice note
• The Law Society’s run-off cover practice note
• Solicitors Regulation Authority’s risk assessment guidance
• Quill’s 15-step guide to starting your own law firm
• Quill’s guide to the essential smart law firm technology in 2021