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Favourable PII Premiums
June 7, 2023

 

 

More Favourable PII Premiums Could Be on The Way- But Firms Should Act Now

1. Introduction

Law firms that are planning to renew their Professional Indemnity Insurance (PII) this Autumn may experience premium increases that are more closely aligned with inflation rates than in previous years. According to brokers at a recent Gazette roundtable discussion, the traditional renewal date of 1 October, which is still widely used by many law firms, is expected to bring average premium increases ranging from 5% to 10%. This is significantly lower than the 2021-22 period, during which PII rates typically experienced an increase of 10% to 30%.

Anticipating a potential softening of the Professional Indemnity Insurance market is certainly encouraging; however, the rising cost of insurance has long been a pressing issue for law firms, particularly smaller firms or those specialising in conveyancing or other high-risk areas. To address these concerns, it is crucial for firms to establish solid risk management processes and initiate preparations for their PII renewals well in advance. Firms must look for ways of establishing with the Insurers that they have risk and compliance under control and can actively demonstrate this through focused and robust procedures. It is not sufficient to have a good or positive claims history.

 2. Preparing For PII Renewal – Do Not Leave It Too Late

Professional Indemnity Insurance is often expensive and sits in the top 5 expenditure items in a firm’s expenses. Actively managing and controlling this spend is, therefore sensible from a financial perspective, and active management of premiums also involves improving risk, which in turn has much wider benefits for a law firm.

However, many law firms often delay obtaining renewal terms or quotations for their Professional Indemnity Insurance until the last minute, which puts them in a weaker negotiating position and may cause them to accept suboptimal terms. At The Strategic Partner, we advise firms to be proactive and secure their renewal terms well in advance by engaging with their broker or insurer up to three months prior to the renewal date.

For instance, if your renewal is in October, it is time to act now. Initiating contact with an insurer early can greatly benefit your firm, as it increases the likelihood of obtaining more favourable renewal terms. By starting the renewal process early and actively engaging with the insurer, they will have a better understanding of your firm’s operations and risk management approach. This proactive communication can lead to improved terms and a stronger partnership with your chosen insurance provider.

3. Improving Your Risk Profile Through Sustained Consistent Risk Control 

Insurers recognise that while historical data offers valuable insights into a firm’s nature and risk attitude, recent and current processes hold greater relevance, as they are often the source of claims. To ease their concerns, insurers need tangible evidence of a firm consistently applying its policies and procedures to maintain risk control.

Proving this to insurers influences their underwriting decisions and premium-setting for the firm. Regrettably, many firms struggle to demonstrate this consistency, despite having appropriate policies in place. The actual implementation and documentation of such policies often fall short. Managing a robust risk and compliance system might appear simple in theory, but reality often proves otherwise—particularly for firms lacking a dedicated compliance team or manager. When partners double as fee earners and firm administrators, compliance tasks can easily be neglected.

One might argue that a firm with no fundamental issues other than falling behind on administrative tasks should not face penalties. However, neither the SRA nor PII providers are willing to accept this premise. Both insurers and those working for the regulator are tasked with controlling and managing a firm’s risks, so they cannot afford to rely on unsupported claims.

The solutions involve more than just straightforward fixes; they require focus, dedication, and proper presentation to insurers.

The Strategic Partner works with law firms of all sizes to create effective compliance and risk management processes to improve the strength of the procedures and to ensure they can demonstrate to Insurers how the firm manages and controls risk. By demonstrating the firm’s active risk management and control measures, it can be viewed in a more favourable light.

4. Risk Management Solutions 

We have developed the Risk Management Assessment Service to specifically address a firm’s comprehensive management of risk, compliance, and regulations.

This service offers an evaluation and analysis of a firm’s approach to risk and compliance, assisting in identifying potential gaps in risk management and compliance practices. By addressing these gaps, a firm can implement an efficient approach to risk, meeting insurers’ expectations and maintaining control over Professional Indemnity Premiums. This also ensures compliance with the SRA Standards and Regulations as required by the Solicitors Regulation Authority.

As Professional Indemnity Insurance premiums are among the most significant expenses for any law firm, it is vital to establish a solid risk management solution supported by documented audits and reports. This evidence can help reduce premiums by demonstrating a robust risk management approach to your insurers. An audit conducted by a reputable and trusted brand will enhance your firm’s risk management credibility.

Additionally, this review can be expanded to encompass an Independent Audit under Regulation 21 of the Anti-Money Laundering Regulations (MLR) 2017. The Independent AML Audit service provides firms with an entirely independent audit, ensuring that the evaluation is conducted and reported according to regulatory requirements.

 

Find out more about these services:

Risk Assessment and Independent AML Audit Service

Regulation 21 Independent Audit – Anti Money Laundering Regulations (MLR) 2017

5. Regulatory Guidance and Support from Industry Experts

We have developed cost-effective and consultative approach to the implementation of policies and procedures and have designed a range of packaged solutions to assist firms in accelerating the achievement of a robust approach to risk management and compliance.

Each of our services are independent of each other but, combined, provides the ultimate solution for firms as either a complete outsourcing arrangement or to work in conjunction with the firms’ existing resources.

Review – A review of the firm’s approach to regulation and compliance to include all regulatory requirements and AML procedures. The output of this provides the firm with a written gap analysis and solutions to remedy any issues.

Training – Whether you seek training on a 1-2-1 or group basis, The Strategic Partner has a range of training courses and mentoring programmes to suit any firm. We can also design any additional bespoke courses that you need. We have provided training to firms of all sizes, and our clients range from sole practitioners through to multi-office, multi-service firms with overseas offices.

Auditing– Procedural staff, systems, and files to ensure the procedures are up to the required standard and being implemented at case level with a report of the outcome.

Packaged Solutions – Implementation of robust solutions to ensure the firm achieves compliance and then maintains compliance through the provision of ongoing support and assistance: –

Risk, Regulation and Compliance Service (including AML)

Risk, Compliance, AML Guidance and Register Administration Service

Office Manual and Accounts Procedures – Documenting a firm’s operational and accounts provides and overall application of the SRA Accounts Rules.

6. About The Strategic Partner

The Strategic Partner is a law firm knowledge hub. We work with law firms and Professional Indemnity Insurers, advising and guiding on compliance and risk management techniques to assist and reduce instances of claims or regulatory breaches.

We offer a range of services and consultancy tailored to the Legal sector. We have gained a wealth of knowledge and experience in the overall management of law firms and work with them to achieve profitability, stability, and efficiency. We aim to become a valued and respected partner to our member law firms, consistently providing high-quality services and solutions.

For more information about The Strategic Partner, you can call us on 0203 911 9710, email us info@thestrategicpartner.co.uk or visit our website to make an online enquiry.

 

You can view and download the PDF version of this article here.

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