Weathering the storm?

 Over the last few years, law firms have become accustomed to insurers making claims that their renewals for compulsory professional indemnity will be tough. But this year, the fear factor has really taken hold.  Changes to the market and the way that solicitors can structure themselves over the next 12 months could create a perfect storm ahead of the 2011 renewal window.

All law firms in private practice must renew their compulsory professional indemnity insurance on October 1 and the process usually begins in July. This insurance is designed to protect both them and their client in the event of a claim being made. Only qualifying insurers are allowed to offer it and firms who can’t find cover – due to a poor claims record, a major outstanding claim or other risk factors – can apply to be insured through the Assigned Risk Pool (ARP).

This year just over 400 law firms applied to go into the ARP, the last resort for firms that can’t cover from qualifying insurers. In July, the SRA agreed to tighten the monitoring and supervision of firms in the ARP scheme and improve incentives for firms to manage themselves out of it.  Firms that cannot pay their premiums will be managed out. While some firms simply use this as a short term solution until cover can be secured, many could be forced out of business if they can’t secure insurance on the open market and for these firms the outlook is gloomy.

Somewhat surprisingly however, we also saw a number of new insurers emerge in the marketplace, to offer cover for firms with one to nine partners. Just days before this year’s October 1st  insurance deadline, the Law Society provided a scheme for firms having difficulty securing compulsory cover called SafetyNet. This provides assistance to ‘distressed’ firms, or firms seeking to avoid entering the ARP or attempting to exit the ARP, in obtaining professional indemnity cover from the insurance market. 

 It prompts the question; why was this not done sooner, causing less distress for the firms involved? And what can be done to provide further reassurance and incentives for qualifying insurers?  Probably most worrying of all is the thought that, now the renewal process is over for another year, many of these the issues will be forgotten and ignored until they rear their head again in 12 months.  We can only wait to see what impact this will have on firms’ ability to find insurance when the July 2011window opens .