As many as a quarter of all law firms making professional indemnity insurance (PII) applications do not know whether their insurance broker has full access to all insurers prepared to insure their firm.
A Law Society-commissioned study found smaller firms in particular were found to be unaware of the extent to which individual brokers are tied to particular insurers.
The fact that one insurer is responsible for insuring a quarter of all firms shows how dominant key players are.
Law Society Chief Executive Desmond Hudson said: “While the PII market has remained relatively stable for three renewal cycles, firms should not be lulled into a false sense of security.
“They need to source quotations from their full available market and therefore need to know which insurers their broker can access.
“Solicitors should also check the financial strength of their insurer before purchasing their policy.
“It is essential to know that an insurer is financially secure and will be able to meet any claims made on a policy, due to the long-term nature of solicitors’ PII, particularly run-off cover, which must be provided for six years.”
16% of firms were found to have used unrated insurers in 2012-13, an increase on the 9% in 2011-12. Smaller firms were more likely to use an unrated insurer (22% of sole practitioners and 13% of 2-4 partner firms, compared with 5% of 5-10 partner firms and 1% of 11-25 partner firms).
While commercial pressures on firms may tempt them to choose the cheapest PII quote, going with an unrated firm could cost you a lot more than you save.
The report found that over half of firms had experienced a decrease in the cost of their premium for this year compared with last. This was particularly likely to be the case among smaller firms.
The study found 93% of firms supported the Law Society’s goal of developing a common industry wide form. However, the Law Society’s composite application form has yet to make much of a mark.
Just one in twenty-five firms reported having used the form for their 2012-13 PII application. Just over a third said they had chosen not to use the composite form, while half were unaware of its existence.
The Law Society has produced guidance to assist its members to use the market to their advantage and has published new guidance emphasising the importance of an insurer’s financial security.
The full PII report can be found here.