At the time of writing, there are 20 working days until the 1st October PII renewal date, the most populated renewal date for SRA regulated practices.
Whilst 20 working days may not seem like a long time, in the context of this particular renewal period it really is significant. I would estimate, at the very most that circa 35-40% of firms that renew on the 1st October have received their renewal quotation, and a far smaller number have actually finalised the process for this year. What is quite clear from those numbers is that a picture is starting to form as to market conditions, but the picture will become far clearer over the next 10 days as Insurers accelerate their quotation output.
The gathering and completion of information for renewal has never been a particular enjoyable time for the vast majority of firms, and none more so than in the previous two years, with volatile market conditions and the backdrop of a pandemic creating both concern and angst for many. Thankfully this information gathering from Insurers has cooled slightly, albeit there is still a granular approach being taken by a number, particularly concerning; property work, transactional values being advised upon and the financial health of a business.
I was asked to provide an overview of what is occurring in the compulsory layer (£2M or £3M) from a costing and availability perspective, and for the reason shared above as to the partial picture being provided currently, the following assessment should rightly be caveated with the message that this may change as the month progresses. However, a macro-analysis of the market to date is that rate increases have tapered off for firms who have a limited exposure to conveyance work (residential or commercial) or high value advisory work, such firms have seen somewhere between a flat and 5% rate increase, whilst good news for the aforementioned firms, they do not represent the vast majority of the profession.
For the remainder, the outcome appears to be slightly different with premium rises seeming to be higher than those mentioned above. The good news for the majority of property focussed firms is that there has been a clear trend of a successful financial year, a word of caution however! Insurers will base their costing from the last completed years revenue, and the impact of the SDLT stimulus is clear to see on firms revenues. Such increases are having an impact on overall cost, PII Insurers will calculate PII premium as a percentage of revenue, and thus far (in the majority of cases) rate increases of circa 5%-10% are being applied to the new inflated revenues, which are subsequently resulting in higher overall cost. Even those firms whereby Insurers may be maintaining a flat rate, notable revenue increases are still resulting in a notable increase in premium, albeit no change in the metric of insurance cost as a percentage of total revenue.
For those firms who purchase excess layer coverage above the compulsory layer to £10M, the increases are slowing, but revenue increases are also impacting the costing of this particular layer, and costing is at the very best tending to increase in line with revenue. It is a segment of the market that continues to be bereft of real alternatives to the established participants. Cost of coverage above £10M remains competitive, and relative to the layer below, a fraction of the cost in the main.
To answer the most obvious question, why are rates not falling after a minimum of two years of significant increases? Insurers and the individuals responsible for managing their organisations Solicitors PII portfolio continue to navigate their way through a volatile and ever-increasing litigious claims environment. There remains several significant losses being dealt with from historic underwriting years and Insurers remain at pains to point out that notification trends year-on-year are increasing, albeit a significant crystallisation of claims is not occurring as yet. This, coupled with Geopolitical tensions and an uncertain domestic economic outlook, are the most concerning factors impacting underwriting strategy, in truth, almost serving as the proverbial handbrake on welcome rate reduction and new entrants disrupting the current status quo.
We are aware of a survey being shared by the SRA, and whilst we are supportive of the SRA addressing the issue, we also feel the survey should be asking the question of coverage and whether appropriate, as opposed to simply cost. The broad nature of the SRA minimum terms and conditions provides great comfort and is by far the most comprehensive coverage of any professional advisor in the Insurance market. It does, however, also serve as a significant barrier to entry for Insurers. The issue of the conditions in the PII market for SRA regulated practices do need to be reviewed, but cost is the outcome, we are of the view the focus of the regulator needs to shift from cost to that of coverage and claims prevention.
To end on a positive note, there are most certainly signs of recovery within this marketplace and the environment is improving. For the majority, most Insurers are seeking to work with the broking community and their Insureds to enable a fair outcome for both the Insurer and the law firm. Perhaps most importantly, there is greater value to be found, and it is imperative to ensure a full exercise is being undertaken on your behalf, there is no downside in introducing competition, and involving a second broker, should you adopt this method, be sure you are clear with them which Insurers to approach, and be sure they are approaching Insurers directly on your behalf and not accessing via a second intermediary resulting in a bloated chain.
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