It has been widely documented in the insurance press that the UK Professional Indemnity Insurance (PII) market is challenging. A number of participating insurers are reviewing their solicitor portfolios as a direct result of claims activity. Because of this claims activity, rates may well increase for a number of areas of law. At a time when it is as crucial as ever to stand out from the crowd, this article highlights the benefits of investing in your PII renewal process, meanwhile reducing the potential for unnecessary stress further down the line.
Preparation and the Dreaded Proposal Form
Your proposal form may well be the first impression that an underwriter has of your practice. When an underwriter turns the pages of the presentation provided, they can quickly identify how much (or how little) time and effort has been invested in its preparation and completion. Indeed, in some circumstances this can sway their decision either positively or negatively. If you approach your renewal early enough, you can work with your broker to clearly differentiate your firm from the hundreds, possibly even thousands, of your peer group.
Do not wait for the renewal invitation. You will be aware of the minimum information required to populate your proposal form, allocate time well in advance of your renewal date to put this information together, particularly if you are reliant on a number of different colleagues for assistance. As Benjamin Franklin once said, “by failing to prepare, you are preparing to fail”.
So, the same old questions asked in a different way each year just to get the same result, right? Not quite. The proposal form should provide insurers with the bare minimum information required to enable them to offer terms. You are generally asked for “hard” or fixed facts about your practice; these include your fee income, work disciplines undertaken etc. and it is important to recognise that in most instances a proposal form only ever looks backwards.
Ensure that you elaborate on any pertinent points arising from questions within the proposal form and provide the requested supporting information.
There is only so much information a proposal form can provide and in many occasions, it will not do your practice justice. Accompany the form with a covering note outlining a brief history of the firm, articulating how you have arrived where you are today. It is important to be proud of the accomplishments achieved along the way too.
Recognising the proposal form generally only asks for historic information, it is also important to advise what your plans are for the future. What do the next five years look like? Due to the long-tail nature of the class, PII Underwriters will naturally look into your history but also have an eye firmly focussed on the future, if they feel that you have the same attitude then it can help.
Whether the form requests information on an SRA investigation or you cannot answer a risk management question positively, help your application by providing a little more detail on the situation. If you are unsure what requires elaboration, speak to your Lockton representative.
Another suggestion would be to add as much relevant additional information as possible. I highlight the word 'relevant' as you should stick to material information. Whilst underwriters will have no use for your office manual, you may wish to include improvements that you have made to your internal processes and procedures to evidence good risk management.
In recent years, it has significantly aided our negotiations when we have been provided with an overview of who your current clients are and how you source them. We see areas of law categorised for the purpose of PII, but the ultimate client often differs in their risk profile. Providing your underwriter with a better understanding of your client base can really help.
This is particularly relevant if you are representing what is seen as a higher risk clientele, for example high net worth individuals or matters involving white-collar crime. How are you dealing with the risks associated with this?
If you purchase cover in excess of the SRA Minimum Terms & Conditions compulsory limit (£2m for Sole Practitioners and Partnerships, £3m for Companies and LLPs), then it is important to provide information on any high value contracts or transactions that you are dealing with. Provide an update on how they are being managed, and any steps you are taking to ensure deadlines are being met.
Simplified Renewal Process
In some cases insurers may only request an update on your headline figures (financials, areas of work etc.) in order to facilitate a simplified renewal process. Whilst this saves a lot of work, we would still stress the importance of tackling the renewal early. Especially if there have been any material changes to your firm during the policy period or if there has been some claims activity. Depending upon the circumstance, your incumbent insurer may wish to review their renewal terms.
If you leave things to the last minute, this could leave you in a position where your broker would have very little information and time which may limit their ability to negotiate. This is particularly important for firms with conveyancing exposure as it remains the single largest contributor to PII claims against law firms, as such many insurers have restricted appetites.
I opened this article commenting on the current market conditions and 'early' or 'simplified' renewals are an area which could be affected. As Insurers review their portfolios they may see this as the opportunity to review their pricing on what has been a very low maintenance segment. If you have enjoyed a simple renewal for the last few renewals, clarify whether this will be available once more. If you need to invest more time in your renewal, then you need to know early.
To elaborate further on current market conditions we have put together our thoughts on the March and April renewal period in our article 'Reflection on the latest PII renewal season'. This also provides a suggestion of how this will run into 2019 and beyond.
Claims Information and Summaries
One of the most important factors in your renewal negotiation is previous claims, but this does not mean that you are in a negative position if you have incurred a loss in the past.
Insurers are not afraid of writing firms with previous claims against them, but it does make it essential to provide sufficient information around each matter. Underwriters will appreciate a summary and background of the claim, your comments on how it arose and, most importantly, any steps or measures you have put in place to prevent recurrence.
As you may be aware, insurers will require updated claims summaries for at least the previous six years, sometimes more. Your broker can obtain these summaries on your behalf, however on occasion it can slow down the renewal process as some insurers or brokers delay the processing of these documents.
In order for your broker to obtain the claim summaries you will be required to provide a letter of authority. To eliminate these type of delays, complete the authority form immediately upon receipt of your renewal invitation, this will allow your broker to request your claims summaries whilst you complete your proposal form.
Stay mindful that a number of insurers who may have underwritten your practices' PII in the past, may no longer be participating insurers. This could result in a significant delay in them providing the information that is required. Longevity may be a point of consideration when selecting your insurer?
Remember to request a copy of your claims summaries once they are received from your broker and, most importantly, review them. If there is anything you wish to dispute then it is imperative you do so before renewal negotiations commence.
When you acquire another law firm you have the option of converting their PII policy into run-off, or acting as a successor practice and therefore taking on their past liabilities.
The fact that Professional Indemnity insurance is on a claims-made basis means that, despite all of your due-diligence at the time, a claim could still arise years into the future. Any potential new insurers will therefore be keen to understand the reasons behind the acquisition, but also details of the prior practice's claims history.
Claims summaries for any acquired firm will be required by Insurers, and therefore you will want to ensure they are requested along with your own.
Strategy and Timing
Throughout your policy period, you should speak with your broker to establish a strategy for renewal including; when you should start the process, what it will entail and a proposed deadline for when cover will be bound.
Agree on the strategy to include the preferred date for you to be in receipt of your renewal terms. It is important to give yourself sufficient time to act if they are not to your satisfaction. Since the abolishment of the common renewal date, law firms have been able to choose their preferred renewal date throughout the year. Whatever the motive, whether it ties in with your financial year or is simply a quieter time for you, keep in mind the Insurers' workloads.
Many law firms still renew on 1 October and, due to the popularity of 18-month policies, 1 April has become just as busy for Underwriters who could be stretched in the build up to these dates. It is therefore imperative that you allow them sufficient time to review your renewal documentation, which will be to your benefit. School and bank holidays may also be a consideration.
Many Lockton clients are presented with a pre-populated proposal form well in advance of renewal. Our form carries over any information from the previous renewals in order to save time completing a blank form and having to provide information that has previously been provided. The only information required will be to update your last year's information, and answer any new questions insurers require.
It is a common view that the renewal process is complete when instructions have been provided to the broker, but there are more steps along the way. Whilst considering a quotation, or discussing internally, you should look to answer any subjectivities attached as your response may affect the terms. All subjectivities must be answered to underwriters' satisfaction before any cover can be bound.
Many subjectivities will arise from the information contained within your proposal form and supplementary information. Be sure to answer them in detail, but also make a note that they may be areas you wish to tackle in advance of next year's renewal.
You should also look to put steps in place to pay the premium prior to the renewal date. If you are paying by bank transfer then ensure you are set up to do so. If you are looking to finance the premium then there may be additional documentation required, creating a potential further delay.
The sooner your broker or insurer are in receipt of cleared funds, the sooner they can provide you with evidence that cover is in place. This is particularly important for conveyancing panel and Practicing Certificate applications.
Material Changes during the Policy Period
Once their renewal is finalised and policy documentation has been received, I'm sure many law firms will be happy that they can now focus on fee earning and not have to speak with their broker for a good few months!
Whilst in most cases this is true, it is important to remember your obligations under The Insurance Act 2015. Under the Act, you have a duty to make a fair presentation of your risk. To meet this duty you must continue to keep your broker and insurer updated throughout the policy period of any material changes to your practice. Information is considered material if it would influence the judgement of an insurer in calculating your premium or the terms of cover.
Should you have any questions on the contents of this article, please do not hesitate to contact your Lockton representative or myself directly and either of us will be very happy to assist you.