Blog posted by Brian Boehmer, a partner at Legal Futures Associate Lockton [1]
Boehmer: There is still an active market
Our research, reported on Legal Futures on Monday [2], shows that the spring renewal season was not an enjoyable experience for law firms, with professional indemnity insurance premiums steadily increasing, alongside the challenges of remote working.
Schools were closed for a major part of the renewal process and we know that the demands of home schooling and other commitments during lockdown were significant.
The good news is that the insurance market is cyclical and harder markets typically do not last as long as other aspects of the insurance cycle. However, unfortunately we do not envisage the current market conditions changing positively for some time.
We anticipate that rates will continue to rise in October, although perhaps not quite as dramatically as they have done in recent years.
If your risk profile has altered and you are now undertaking a larger percentage of high-risk work, that could result in more of a cosmic shift in premium spend, as rates for higher-risk practice areas have been increasing.
If your risk profile remains unchanged, we anticipate premiums going up but not as dramatically.
Insurers’ appetites are unlikely to change dramatically either and the extension to the stamp duty land tax holiday is likely to curtail insurers from relaxing their appetite for practices with property exposures.
There is still an active market though, evidenced by the fact that we placed business with more insurers in the spring than we were able to in October 2020.
We anticipate heightened mergers and acquisition activity, and whilst we appreciate that practices should be alive to opportunities, it is incredibly important to be alive to the risks associated, too. If you are going to consider acquiring or merging a practice, do not rush your decisions: undertake appropriate due diligence and ensure that culture forms an important consideration.
Remember that if something or someone seems too good to be true, it generally will be.
Lateral hires create both opportunities and risk and if you are looking to expand your existing team and current infrastructure, great. If this is a new area, insurers will be expecting you to have the appropriate experience to peer review their work and if not, they will want to know how you intend to mitigate the risks associated with their specialisms.
New practice areas could be a consideration for some, but we urge you to liaise with your representative to discuss with your insurers and establish what potential impact this could have on your business.
Insurers will expect that you have the appropriate skillset to diversify your business and that you have properly considered the risks associated with doing that. Insurers also expect you to advise them of additional fee-earners joining, too.
Succession planning is high on the agenda for insurers, so it is vital that you address this is subject. Insurers will want to know what your plans are for the future and they do not like surprises.
What you can do now
Whilst the insurance market is unlikely to be active until the end of July – and for some, that date may creep to the start of August – we recommend that all practices commence their preparations early.
We recommend giving insurers and their underwriting teams a better insight into your practice and preparing a supporting note to accompany the various forms that will be required. Make sure you address their concerns within the document and focus on what you do and for whom.
In particular, consider how you look to mitigate the risks associated with your chosen practice area specialisms. It is important to make the right impression of your practices and to highlight the accomplishments and accolades that your firm and your staff have achieved.
Review your claim summaries now to ensure that these are correct, proactively addressing open matters for closure wherever possible.
Insurers’ claims teams are inundated with new notifications and claim summary requests, particularly when declarations are being signed, so it is prudent to review these matters now. You should also look to prepare some narrative on both open matters with and without any payments or reserves, along with providing narrative where there have been claims payments.
Insurers will expect to see five to six years of qualifying claim summaries but we recommend providing more.
Look at all the information online about your practice and your fee-earners – this includes your website, the Law Society listing and any reviews about your practice. Prudent underwriters will do this.
Check that your website is a true reflection of what you are doing. If you are promoting practice areas in which you do not have expertise, this may well be off-putting to insurers. Look at reviews online and respond to them appropriately.
Risk management should be high on the agenda for every practice and reducing claims impacting the profession will positively impact on market conditions. In the longer term, if we do not actively
look to addressing risk, then it is unlikely that we will experience any positive change and the current market conditions will unfortunately be much more prolonged.
In a challenging marketplace, the selection of your insurance representative is crucial. A specialist broker should be able to demonstrate that they have comprehensive and most importantly, direct access to the active market and also – vitally – that they are able to articulate their claims proposition.
Whilst nobody wants to experience claims, you want to make sure that the team servicing you has the appropriate expertise and infrastructure to support you in your hour of need.