Professional Indemnity Insurance and Covid-19: a message from Jake Fox and the Professional Risks team
We are now past the first main Professional Indemnity Insurance (PII) renewal period of the year for law firms, with an insurance market that was already becoming increasingly tough further impacted by the unique set of circumstances Covid-19 has brought about. In very short summary, the benign PI market of years gone by is definitely no more.
Reflections on the March/April renewal
Law firms that completed their proposal forms and engaged with specialist brokers in good time were able to understand insurers’ appetites, the availability of cover and their pricing options in full and, at very least, secure renewal with plenty of time to spare. This is not to say that renewal has been straightforward in terms of premium levels, as the general consensus is that premium rates for the compulsory layer of cover increased by between 10% and 20% compared to 2019.
Some firms were faced with much more significant increases if they were forced to move cover away from insurers that are no longer in the market, for example Omnyy and China Re. With insurers that are still in the market focusing initially on looking after their existing clients and not having significant new business appetite, these firms in particular may have faced a considerable reality check. In addition, the difficulties in the excess layer market remain, with costs for the layers above the compulsory limit increasing by as much as 100% in some instances.
Firms with particular profiles or issues that needed to be explained to insurers including complex, large claims, a higher-risk work profile such as conveyancing, or those with different business models, may also have found that the renewal process was more difficult than over the last few years. Even if they submitted their proposals very early, for some there was little opportunity to garner interest from competing insurers. For those firms that have a long-standing relationship with their insurer and use the services of a specialist broker this may not have been too much of an issue, but for those that have moved insurers consistently and have engaged with brokers that don’t truly understand this market, this may have caused problems.
To exacerbate some of the challenges already prevalent in the PII market, from early March, we noticed the effects of Covid-19 taking hold. Some insurers switched their focus to renewals and current business only, and there was a slight delay in response times as most staff became used to working from home. In other classes of insurance, we are still seeing an approach of ‘existing business only’ from many insurers. We feel fortunate that our business already had the capability and technology to support home-working fully and for us it is very much business as usual.
How our clients have responded to Covid-19
Beyond dealing with the initial task of setting up remote workers, many of our clients are seeing the other challenges of Coronavirus in full force. The pandemic has effectively paused the economy, meaning leaders of businesses must now prioritise mid-long term cashflow and consider how to ‘keep the lights on’ in a law firm when, if the lockdown period continues, some work types could eventually dry up.
The unique way legal practices account, budget and forecast leaves a dilemma; keeping enough resource in the business to maintain a service and retain staff for when demand eventually returns, but run the practice sensibly enough not to drain cash reserves. Many businesses are grateful for government support which should come to bear during April, but they recognise a need to forecast beyond a three month period, so must plan for this aid being finite too.
Our team is spending lots of time signposting law firms to other suppliers in our network and highlighting the key risk management points solicitors ought to consider. These include:
- Ensuring regulatory compliance, especially around data with more home workers. Whilst regulators have been sympathetic, their bottom line remains that all firms have a duty to maintain client care standards and their level of compliance.
- Maintaining adequate cashflow and staff numbers
- Keeping staff engaged and well-managed.
- Overseeing a consistent quality of work and service delivery (thus avoiding further exposure to negligence allegations).
- Reviewing office/property insurance programmes to ensure unoccupied property is adequately protected.
- Keeping PI Insurers informed of changes to a practice and any material facts (e.g. furloughing a significant portion of staff should be reported to insurers on an ongoing basis). Insurers are proving very understanding of the changes businesses are having to make.
- Reviewing Cyber Liability Insurance and Directors & Officers Liability covers. Given the remote working of staff and the additional potential for cyber exposures and regulatory issues, we need to ensure our clients are adequately covered, or at least understand the options available.
Looking ahead to the October renewal
As we all become familiar with our ‘new normal’, the next natural insurance focus is the 1st October PII renewal. The current lockdown position may well continue in one form or another for some time, so rightly law firms’ priorities will be to maintain cashflow and margin, retain staff and control costs. Those factors compounding an already toughening PII market mean it is critical that firms begin the renewal process in plenty of time. We are already engaging directly with the main insurers in the market to understand their likely rates and the risk factors they will want clarity on given the prevailing situation. We know that a number of firms may well see a significant, but hopefully short term, reduction in fee income, so controlling your PII costs is crucial.
We would urge firms to act early before the next PII renewal season. Engage with your broker now with a view to completing a proposal form in June or early July. Make sure you understand how your broker accesses the market and which insurers will be approached. Specialist PII brokers that have direct access to their insurers will be able to secure terms more quickly than those that don’t. The specialists will also be far better informed of insurers’ appetite and approach to renewal in October. If we are still in some form of lockdown as renewal approaches and you are used to meeting your insurers before renewal, ask your broker to arrange a video or conference call.
In summary, the PII market remains very much open, albeit with rates hardening, so all firms should budget for premium increases. However, with early preparation and support from your broker, you should still be able to engage with a range of insurers in plenty of time to understand your options.
Please do feel free to get in touch with any of the team here at JM Glendinning Professional Risks. We are here to help if we can.