2015 - a year of increased capacity and competition for attractive risks
The solicitors renewal season for 2015 saw fierce competition from several new entrants and at the same time increased capacity from a number of the existing participating insurers, hungry to grow their market share.
Much of the new capacity was aimed at the smaller law firms where the target market was either for one to five partner firms and up to ten partner practices. In particular sole practitioners benefited from lower premiums as many of the participating insurers offered reduced rates due to the relatively good claims track record in this sector of the profession.
For most of the mid to larger firms, renewals were relatively benign. Those firms that saw increases were mainly as a result of a poor claims track record or due to merger and acquisition activity, where cover was required for the past liabilities of the acquired firm.
New entrants: Pelican Underwriting & QIC
The two notable entrants this year were Pelican and QIC. Unlike previous years where many of the new entrants lacked financial strength, both insurers had a security rating of AA and A respectively. This new capacity entered at a time when there was an increased opportunity for growth, as the majority of potential claims arising from the financial crisis have already emerged, and the risk of swathes of new recession-related claimshas subsided with the expiry of the six-year limitation period. The perception is that the worst was over in terms of a peak in claims against solicitors, for the time being at least.
Increases in rate curtailed
Insurers seeking to increase their premiums for their insured firms as a result of their modest growth in gross fees, found that this was curtailed with premiums largely remaining flat. Those insurers who attempted to increase rates across their portfolio struggled to retain their clients due to competition from others in the market.
Premiums for small and medium size firms are considerably more as a percentage of gross fees than it is for large law firms. A sole practitioner will on average spend 5% of their annual fee income on the compulsory cover, compared with the largest who will pay less than 1% of gross fees. Economies of scale and the risk management resources of the larger law firms mean they are able to secure premiums at a lower relative cost.
Claims remain a driver
Although size of firm does mean the larger firms can reduce their relative overall cost of PII, the key driver to reducing the cost of premiums remain the same for all; namely claims. Premiums will always follow the direction of claims and therefore if a firm can adapt its risk management to avoid and prevent them, the firm will ultimately be able to reduce the cost of its PII in the future.
How Lockton can help
If you have your PII renewal coming up in the next 4-6 months, now is the time to talk to us.
Or perhaps you are simply concerned that your claims profile or other aspects of your firm profile make you a 'high risk' practice in the eyes of insurers? We can help you actively address risk issues in your practice and help differentiate you when presenting you to insurers.
Contact us for more information about how our claims and risk management services can help you make your professional indemnity renewal simpler and cheaper in future.