Posted by Brian Rogers, director of regulation and compliance at Legal Futures Associate Riliance
This was a well-known saying from Max Bygraves, but it is one that perhaps all firms should consider when looking at their professional indemnity insurance renewals.
For many years we have heard insurers and commentators say that renewal is going be difficult for firms, but many firms have taken this with a pinch of salt thinking it is just people crying wolf again; but having seen the issues that came with the last renewal, should firms take more heed of the warnings this year?
The last renewal saw over 100 firms close as a consequence of not being able to obtain insurance cover. This year, with the SRA review of the unrated insurance provision, we could see 2,500 firms at risk of losing their cover and in a position of having to find cover with rated insurers.
Many commentators have given their thoughts on why firms are currently with unrated insurers, for example, seen as too high a risk, have too many claims, the cover being cheap, etc. But the reality is that many are there because rated insurers just won’t cover small firms. The debate rumbles on as to why insurers choose to use partner numbers as part of their risk assessment in deciding whether to cover a firm, especially when you look at some of the large firms that have collapsed over the last 12-18 months.
My understanding from the Solicitors Regulation Authority is that there are more large firms in severe financial trouble and at risk of collapse; could it be that these on-going collapses could lead to a re-assessment by insurers of their risk criteria to include small, well-run firms with fewer partners? Time will tell, but it seems clear that using partner numbers as a risk criterion is coming to the end of its shelf life.
Whatever happens, firms need to ensure they can tell a good story to their current or potential insurers; it cannot be taken for granted that just because a firm is covered by an insurer now that the same insurer will cover them at renewal, especially if they have merged or moved into new areas of work without seeking guidance from their insurer first. Many firms lost cover last year as a consequence of not involving their insurers early on, so don’t let it happen to you.
Having spoken with insurers recently, it is clear that being able to tell a good story about your firm is essential; don’t tell ‘little white lies’, as you will get caught out sooner or later, leading to issues with claims and a lack of future cover. Don’t forget also that you have to disclose whether or not you have had an application for cover refused, a little white lie that could really come back to haunt you.
A good story has to be supported, so make sure you maintain an evidence base that can be called upon when required; insurers can see whether a story has been made up in a day or over a period of time so start your story now if you haven’t already, as leaving it until renewal will be too late.