Professional indemnity cover for solicitors
Everybody spoke about reductions in premiums this year, where did the market finish up?
The market figures are constantly changing, however, based on Qualifying Insurer submissions to the Solicitors Regulatory Authority this year, market size ended up at just over £200m in premium collected for everyone’s primary layers. Back in the days of SIF the premiums collected were in the region of £320m, then in 2004, premiums collected were £242m and in 2006 they were £215m.
The market continues to be about price and not much more. Most solicitors from the largest to smallest obtained alternative quotations as a matter of course. Professional indemnity insurance is required to obtain practicing certificates and is viewed therefore as a commodity and the lowest premium will almost always win the client.
What was the strategy adopted by insurers?
Qualifying insurers this year didn’t want to lose any of their existing book of business, however due to some of the huge discounts being made available to Solicitors, some insurers did have a ‘walk away’ price which allowed other qualifying insurers to obtain Solicitors business. There are currently 28 qualifying insurers yet Zurich, AIG, St Pauls, QBE, Norwich Union, RSA and QUINN now account for almost 85% of the market.
QUINN wrote large amounts of new business and established themselves as a significant player in the market while some other larger qualifying insurers have purposely reduced their exposure to the Solicitors professional indemnity market.
If insurers say they are losing money when are rates decreasing?
It only takes one or two new insurers with a few million pounds of capacity to cause reductions in Solicitors professional indemnity premiums. Over the past few years we have seen new insurers enter the market aggressively and grow their book of business to several millions pounds then either exit or significantly reduce their exposure. One insurer entered the market for two years collected approx.£4.3m in premium and is currently looking at losses in the region of £16m. Suffice to say, they no longer write solicitors professional indemnity insurance. Another large insurer advised in the Gazette that for every £1 of premium collected, insurers paid £1.60 in claims and expenses.
If you are writing a few million pounds of premium with a primary level of indemnity of £2m, it only takes one total loss claim to make you think again about writing this type of insurance.
Irrespective of what you believe, claims costs for all qualifying insurers are increasing and the terms of the professional indemnity insurance affords insurers few defaces and the claims will have to be paid. With the property market starting to squeak, lenders claims are increasing, solicitors involved in conveyancing frauds (whether dishonestly or unwittingly) are notifying increasing numbers of claims.
What advice would you give to Solicitors for 2008?
I think Solicitors don’t always differentiate between brokers and insurers. Brokers like Solicitorassist have access to almost every insurer and can shop the market on your behalf. Some Solicitors will send their proposal form to six or seven brokers which only serves to put insurers off presenting terms. Some insurers won’t quote a Solicitor if they receive the proposal form from more than two brokers. Other insurers operate on a first come first served basis but the problem is that if you use too many brokers your terms could be split across a number of brokers making it more difficult for brokers to negotiate on you behalf.
I would recommend using no more than two brokers. If you used Solicitorassist in conjunction with InsuranceforSolicitors.co.uk in 2008 you won’t go far wrong.
Will rates go up or down in 2008?
In 2007 with QUINN seeking to aggressively grow their market share and NU moving the balance of their book from larger sized firms to 2 partner plus firms, the market was always going to soften.
At the heart of the market are the large insurers who have been involved consistently post-SIF since 2000 who have been squeezed in each of the past years by new entrants. The larger insurers undoubtedly want and need rates to go up.
The current premiums being charged are probably unsustainable, unless there is another new entrant to the market next year or there is a significant reduction in claim levels which at this stage seems unlikely.
