INSURANCE: Take cover before deadline day arrives
New insurance arrangements means new choice for solicitors, writes Adrian Leonard... but only if they are quick
Insurers and brokers began circling the moment a free market in solicitors’ professional indemnity insurance was established. The demise of the Solicitors’ Indemnity Fund (SIF) has led to a range of choices for law firms (albeit a choice of providers, rather than a wide selection of products), but advisers from all quarters recommend that insurance buyers should act now to finalise new insurance arrangements. Firms must have alternative cover in place by 1 September, the day SIF ceases accepting new business, but those that hesitate beyond July might face fewer alternatives. The Law Society, after adding six new names in June, has approved 18 ‘qualifying insurers’ as being eligible to offer cover (see table). Each must offer cover based on a standard policy wording agreed by the Law Society. Modelled on SIF’s product, the wording ensures solicitors will receive wider indemnity than that offered to any other profession in the UK. For example, insurers are unable to avoid a claim due to material non-disclosure by an insured party, an exclusion that is standard in almost every other line of professional indemnity insurance. The wording also causes insurers to tread very carefully into the business: many have set initial limits on the amount of business they will accept, and few have been willing to be among the first to put prices on policies. St Paul International, a large US insurer that has been active in the UK for many years, has won the tender to operate the Law Society’s joint venture insurer. Although called the Solicitors’ Professional Indemnity Limited (Spil), it is widely known as the Managing General Agent (MGA), and St Paul is quick to promote the operation’s independence from its 51% owner: the Law Society. “The joint venture is advertising and marketing under the St Paul brand, and functions like an operating division of St Paul,” insists Richard Gerrard of St Paul. That means MGA will not necessarily offer the best rates or service, nor is it obliged to grant cover to every firm. However, it is prohibited from refusing to cover any class of firms based on their size or areas of speciality, a restriction that does not apply to other qualifying insurers. MGA has several operational advantages. It will retain SIF staff members who choose to remain, which Gerrard argues will allow the company to maintain the level of claims service and expertise popular among SIF clients. It will also enjoy access to SIF’s historic claims information, which some competitors have argued will give the new insurer an advantage. It is the easy option for firms to select. “The MGA will probably do quite well, not necessarily because it will be the cheapest, but because it will be convenient,” says Trevor Moss, a director of the brokerage Nelson Hurst Professional Indemnity. That would suit Gerrard. “We expect to be the market leader, come the first of September,” he says. Some firms will be unable to obtain cover from either Spil or the qualifying insurers. Others will simply fail to have cover in place before 1 September. All such firms will be required to obtain cover from the so-called Assigned Risks Pool, the solicitors’ indemnity insurer of last resort. The pool will be funded through the punitive rates and fees it will charge, including late penalties for firms that allow their SIF cover to expire without making alternative arrangements. Liabilities beyond its means will be met by the qualifying insurers, whose exposure to the pool varies according to the premium each collects from other solicitors’ indemnity clients. This should avoid a SIF-style shortfall. Evidence points to the possibility that firms postponing action will have fewer alternatives to the pool. “Our advice is to get in quick,” Moss says. “Some insurers have only limited premium capacity, and others are concerned that the more business they write, the more exposure they have to the Assigned Risks Pool. Firms that leave it until August will be exposed to a market that will probably be reducing in capacity [to accept business]. Those that want to stand out from the crowd should get their submissions to the brokers in the next couple of weeks.” For many firms their first action will be to set an insurance broker to the task. Hammond Suddards’ insurance partner, Edward Coulson, says firms should begin by talking to their brokers fairly soon about their approach to the insurance market, and by sorting out the details of their claims record. “Although the minimum terms [of the cover] largely take away the ability of insurers to avoid cover due to non-disclosure, there are some sanctions, and it seems to be dancing with the devil to hold back on disclosure.” He adds that offering a full account of past claims could even lead to lower premiums. Zahid Naqvi, professions underwriter at qualifying insurer Hiscox concurs. “The more comprehensive the summary presentation, the better. Firms with a number of claims could have an explanation for them. With it, we might be in a better position to ignore those claims, but if the information is not there we cannot provide our most competitive terms,” he says.While Coulson is unconvinced that firms will be driven from practice by the new arrangements, he believes they will lead to improved risk management: “There will be a far closer correlation between a firm’s claims record and their premiums than in the past, which is bound to concentrate people’s minds on risk management.”
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