By Legal Futures Associate Miller Insurance [1]
When it comes to completing your Professional Indemnity Insurance (PII) [2] proposal form, financial details are paramount. While the information requested may not always align neatly with the data that comes out of your accounts package or practice management software, it’s crucial to take the time to ensure accuracy. This is your opportunity to present a clear, compelling picture of your financial strength and stability to insurers.
Why financial stability matters to insurers
Insurers have a very real concern about the financial stability of law firms, particularly when it comes to covering the cost of compulsory run-off cover. This cover provides six years of protection against professional indemnity claims after a firm ceases trading, and insurers are obligated to provide this even if the firm cannot pay the premium. Assurance that a firm can meet its financial obligations is therefore high on insurers’ agendas.
The Law Society’s [3] latest report on law firm profitability continues to indicate a reliance on client account interest driving profit margins, with underlying performance issues remaining. Miller’s own 2025 Risk Benchmarking Report suggests that small firms, in particular, are concerned about financial risks. Given these metrics, and the number of high profile large-firm failures in recent years, insurers are looking for positive indicators of sustainable growth, profit margins and cashflow, and alert to contrary risk indicators.
Key metrics insurers use to evaluate financial resilience
Fee income fluctuations
Insurers will carefully scrutinise fluctuations in your fee income, whether it’s rising significantly or declining materially over time.
Sudden increases in fee income can signal a level of growth that is not supported by adequate supervision, systems, or procedures. It may also indicate high-risk work streams or changes in the way work is accepted. Legitimate reasons of course exist, such as the temporary surge in property transactions due to changes in stamp duty thresholds from April; or the stamp duty ‘holiday’ during the COVID-19 lockdown, which led to a hot property market and firms raising their rates to manage demand and reflect the true cost of work. Providing context is key to prevent assumptions potentially being made.
On the other hand, a marked decrease in fee income may not necessarily alarm insurers, especially if it is tied to deliberate changes in your firm’s operations, such as ceasing a particular work type and reducing staff accordingly. Temporary reductions, such as those caused by major system outages (e.g., ransomware attacks), can also be mitigated in the eyes of insurers if you can demonstrate how the issue was contained, addressed, and how the firm has recovered. Transparency is key here. Evidence that the incident hasn’t exposed the firm – or its insurer – to a wave of PII claims will go a long way.
If your fee income is decreasing year-on-year as part of a planned business wind-down, you’ll need to provide a clear succession plan. Whether you intend to sell the business, wind it up, or pursue another strategy, insurers will want to know that you can afford the run-off premium – which can be up to 350% of your usual annual premium, depending on the Insurer.
Strengthen your PII submission now
Miller’s Financial Health Checklist is a free practical tool designed to help law firms assess and present their financial position with confidence.
Ideal for renewal preparation or internal review, it highlights key financial indicators and guides you on how to present data effectively to insurers in a step-by-step method.
Click here to access the checklist now. [4]