Steve Ray comments on the professional indemnity insurance market

Steve Ray comments on the professional indemnity insurance market

Steve is a Director of Howden Windsor, the Professional Indemnity Division of Howden Insurance Brokers. He has been at Howden Windsor for six years having formerly been a partner at well known risk management practice McCavitt Ray & Co.

What do you think will happen to the insurance market for Solicitor’s practices over the next year?

“Well most of the Qualifying Insurers are well established but new big players like XL Insurance Ltd and the International Insurance Company of Hannover are still relative unknowns.

“Between the two Insurers they have nearly £80m of business, or over 30% of the market between them (correct at 1.10.2011, figures now £67m at 1.10.2012).

“Prior to 2009 neither of these Insurers had any business in the Solicitor’s primary Professional Indemnity Insurance market. If either of these companies lose interest or become the subject of a deterioration in their claims experience and they withdraw or scale back their support dramatically, then I think prices will rise quickly.

“Only seven Insurers have more than a 5% market share so in fact any of these Insurers losing interest could have an impact.

“However rates are not expected to increase in the short term and one might expect them to reduce a little.”

How can insurers mark themselves apart?

“It’s very difficult for insurers to differentiate themselves other than on price. That makes it very hard for us as brokers because typically we work hard, for other professions, to make sure that our clients get the best coverage. In this market that option is not really available.

“We have to ensure instead that they understand what’s going on from an insurance perspective, where the insurers have concerns and that they know about for example what coverage is available for both the COLPs and COFAs.

“The insurers have been looking at ways to give coverage back to law firms for exposure in these areas. What a lot of insurers have done is make sure there are regulatory and defence costs in there, however the options do vary considerably.

“Clearly for those firms which have claims, it will be apparent that different Insurers can provide a better claim service than others and are also better at working with their clients at ensuring the best outcome is achieved — for Solicitor Practices this knowledge can sometimes be painfully learned.”

What does the insurance industry think of the amount of mergers that are taking place?

“Insurers obviously recognise that there is an air of inevitability about the number of mergers taking place, as some firms struggle to meet the threat of the Alternative Business Structures and others look at synergies as they battle through this prolonged recession.

“For Solicitor Practices it is important to engage with their Insurer when looking to merge. In our experience firms often haven’t considered the true additional costs of buying another firm, particularly where the firm to be acquired or merged has had a chequered Insurance history.

“Prior to making decisions we can advise on most likely implications. Firms merging is certainly not something that necessarily bothers insurers.”

What do you think will happen to rates over the coming year?

“A number of insurers have strategically reviewed their book over the last two or three years in order to pull away from certain areas (size of practice and type of work) and in turn push heavily and aggressively in other areas.

“Larger practices that have a decent level of income, not too many offices and the right standards of control will get a reasonable rate. Insurers don’t even mind a claim or two. In fact a number of Insurers have seen a claim as a watershed moment for a firm, it can show the firm has learnt a lesson and done some work to make sure it doesn’t happen again.

“As we move away from the last housing boom and the Assigned Risks Pool there is of course the possibility that new insurers will be tempted in to this market place which will cause downward pressure on pricing.”

How important do you think technology is for firms?

“There are some good systems available to firms, but as always with technology it is how it is implemented and the extent to which the firm ensures that it is fully embedded in to the working environment.

“Key areas are still obviously ensuring that time critical dates and also in managing satellite offices – and area which Insurers are always keen to understand.

“A few insurers are really quite interested in technology. But the majority are at least alert to the fact their Insured firms, for example, always need to be using the most up to date precedents.

“Some firms have problems where new staff have brought with them their own ways of working, and particularly their own standards of documentation which were already out of date by the time they arrived.

“There are of course a number of new technology advances that are available which should (if used correctly) help mitigate firms against certain types of professional negligence claims. As a risk management tool generally Insurers will always have the problem of knowing to what extent the technology is actually adopted within the firm.“

What could the Law Society be doing differently?

“I think there has been an unusual disconnect on the whole of the insurance piece for law firms. On the one side the Law Society were extraordinarily successful in terms of ensuring that maximum protection has been afforded to the public by getting Insurers to agree to such a broad policy wording.

"However since they devolved the regulatory function and with it the responsibility for Insurance to the SRA in 2007, a number of factors which should have taken place have fallen between the two stools.

“An example and an issue of primary concern should be the link between Qualifying Insurance status and the financial robustness of those Insurers. It surely cannot be right that each party simply the points the finger at another and says that ‘it is their responsibility’.“

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