To navigate the challenges of a hardening insurance market, law firms should now start prioritising the preparation of a high-quality Professional Indemnity Insurance (PII) submission ahead of the coming renewal period.
The insurance market has been awash with capital, leading to increased competition for business and a subsequent suppression of the rates insurers could charge. This has resulted in unsustainably low premiums compared to the claim payments being made by insurers, but sadly times are changing.
Claims activity has been the main catalyst for the significantly changing market conditions that we are experiencing. While frequency of claims has remained fairly consistent, severity of claims (the total value of losses experienced) has reached unprecedented levels.
We believe that the recent spring renewal period showed us what to expect going into August and September. Analysis of insight and trends from Lockton’s portfolio indicates increased premiums within all layers but especially the working layer (the excess layer above your compulsory Insurance limit) where there is a lack of insurer options. With many primary insurers reluctant to offer long-term policy periods and those that did offer extended policies tended to apply an increase for the additional periods.
It is important to highlight, that the Insurance market conditions were hardening well before the Covid-19 outbreak. We believe this process is now likely to accelerate due to the pandemic, leading to a further hardening market.
While the sourcing of coverage may become more difficult for law firms, the legal profession in England and Wales is fortunately not experiencing reduced coverage as practices are protected by the Solicitors Regulation Authority’s Minimum Terms and Conditions wording.
What to expect in the coming months
We expect underwriters to adopt an even greater level of caution when they review enquiries in the forthcoming renewal season. Peer reviews will be conducted as standard, certainly when insurers are assessing new enquiries and regardless of the size of a practice and the proposed premium to be charged. More questions, including those related to Covid-19, will be posed and responses will therefore need to be reviewed by at least one other underwriter. This means the process of obtaining terms may take longer, especially considering most insurers will be working remotely.
Some insurers have already released early question sets relating to Covid-19, while others are developing supplementary questionnaires. We expect all of these to focus on three key areas: People, Finances and Risk, some of which will naturally interlink.
Navigating the challenges
Although the insurance market has adapted well to the ‘new normal’, some things are naturally taking a little longer than they would have done previously. As mentioned, a combination of the hardening market, increased peer reviews and greater caution from underwriters has made it more difficult to obtain insurance terms. This means those firms that are traditionally ‘last minute shoppers’ and which provide minimum information to insurers should not be surprised if they fall into the Extended Policy Period.
The insurance market is still active, but it is becoming much more selective. Underwriters cannot return a profit for their organisation if they do not write any business, but they will need greater convincing and will want to align their company’s capital with well-run firms. At Lockton, it is our job to provide them with the reasons to do so, but legal practices cannot be blasé and we encourage them to approach renewal in the right way.
We believe taking these three key steps will help practices navigate the challenges ahead:
1. Start early – While we would expect insurers to prioritise their existing clients, it is still important that you prepare your presentation earlier than in previous years. We recommend having your presentation prepared at least two months in advance of your renewal date as the process will generally take longer.
2. Prepare a quality presentation for insurers’ consideration – this will help you stand out from the crowd. Make sure all the questions in the proposal form are sufficiently answered. Time will be limited so expect insurers to make a quick decision and potentially not offer any terms if your presentation is missing key information or if it is poorly presented.
3. Select your representative carefully and do not approach multiple agents as you will actually be doing your professional peers – and yourself – a disservice.
You may wish to consider the following key elements when selecting your representative:
- What is their market reach – which insurers can the broker access DIRECTLY for you? Speaking directly to an insurer will help speed up the process and means your key message does not get diluted or misinterpreted.
- What is the experience and size of their team?
- What is the extent of their service proposition?
- What is their claims infrastructure? While no one wants to have claims, you should know if your representative has the resources to support you when needed.
Once you have selected your representative, ensure you establish an action plan with your broker which covers who they will be approaching directly and the anticipated timeline for responses.
To find out how Lockton can assist you with your forthcoming renewal, please do contact me or one of the Lockton Solicitors team. We would be delighted to hear from you.
Brian Boehmer
Partner
Tel: 0781 401 4655 E brian.boehmer@uk.lockton.com