By the time this article is published, we will have got through the key 1st October renewal date for SRA regulated Firms, following the immensely difficult CLC renewal earlier in the summer.
Overall the Market for Legal Firms’ Professional Indemnity Insurance (PII) remains very challenging, and indeed we have seen some Firms simply being unable to obtain cover at an affordable price, or indeed unable to secure terms at all.
The difficulties across the whole of the Insurance Market have been the subject of much comment over the past two years, but the specific problem relating to Professional Service Firms is the fear of a Property recession in the UK being factored into insurers thinking by their Actuaries. This fear has been stoked by among other issues Brexit, the COVID pandemic, and a view that the Residential market is “overheated”.
Insurer’s past experiences of catastrophic losses following a Property recession bears out their right to be nervous. Thus what clients are experiencing is a lack of competition for their business in the Market and an aversion on behalf of insurers to get involved in the PII for Valuation Surveying and Conveyancing Firms.
Thus for the Insurance to improve from the buyers perspective, one needs them to believe in a “brighter future” and direct their capital into the PII market.
In the meantime in order for a Firm to present themselves in the best possible light, we would proffer the following thoughts as worthy of consideration:
- “The Need to tell your story to Insurers”
The claims record for our CLC Firms demonstrates vividly that Member firms are highly competent at the core activity of assisting in the purchase, sale and re-mortgage of Residential property. Most firms having invested in systems and IT support to make the process as robust as possible. The problems we have seen arise when a Firm decides to act outside of their historic strengths.
Examples include suddenly electing to work on New Build Developments, especially those promoted by smaller developers who require much larger deposits than the larger more respectable House Builders. Or perhaps they decide to act on a Collective Investment Scheme without understanding the highly speculative nature of such an investment and not giving the requisite Health warnings or the need to obtain independent advice. In the end you have sold a particular story of your Firm’s activities to your insurer, and when you then go off and do something outside of your historic work profile, it comes as unpleasant shock to all concerned.
- Pressure of Work
Conveyancing Firms appear to have taken to the “Working From Home“ environment driven by the strictures put in place by the government very well, with their core systems holding up and individuals working away to keep the transactions on track .
Insurers are now more concerned by the dramatic uptick in transactions following the SDLT “holiday”, which whilst bringing a most welcome increase in transactions [and thus fees] may well lead to problems down the line for insurers. Please see our latest article “SDLT holiday: a double edged sword for conveyancer firms”, written by my colleague Jenny Screech on this topic.
- Fraud
This a perennial problem due to the vast amounts of money flowing through the Housing Market with criminals attempting to steal money either though impersonation or by the diversion of funds. Despite all the good work that has been done by firms [ably supported by Trade Bodies such as the Conveyancing Association] the problem has not gone away. The root cause of the problem is the failure to identify and verify an individual at the very start of any transaction.
It is also a feature of most Frauds that there is a request to send the Funds on completion overseas , therefore unless you have a depth of experience in remitting monies overseas our direct advice would be please don’t do it .
- Crypto Currencies
It should by now be widely understood that if you decided to act on a transaction where the entire Sale / Purchase is conducted in a Crypto Currency, you will lose your insurer at renewal. There just too many “known unknowns”
It is useful to consider the words of the Governor of the Bank of England on Crypto Currencies earlier this year[1]. Firstly, in a speech to the World Economic Forum in January 2021
“Have we landed on what I would call the design, governance and arrangements for what I would call a lasting digital currency? No I don’t think we are there yet, honestly. I don’t think cryptocurrencies as originally formulated are it.”
And perhaps more bluntly at a Press Conference on 7th May 2021
“If you buy Bitcoin, Dogecoin, or any other digital currency, you should be prepared to lose all of your money.”
Given these messages, insurers are approaching any issue regarding Crypto Currencies with extreme caution.
The issue that keeps coming with Conveyancing is how to treat funds that have been accrued by individuals through investment gains apparently earned via investment in Crypto currencies and the proceeds being converted back into sterling.
At the time of writing the Minimum Terms do not contain any strictures on Crypto currencies given its relatively recent arrival, however it will be interesting to see how this develops as these instruments gain new structure and acceptance.
We will continue to keep you informed of latest developments.
[1] https://fortune.com/2021/05/07/bank-of-england-governor-cryptocurrency-crash-bitcoin-dogecoin-ethereum/
Edward Donne is a Divisional Director in the Professional Indemnity team at Howden
