The proportion of law firms targeted by scammers has risen sharply over the last year, especially among larger firms, as has the number of practices taking out cyber-insurance, according to new research from the Law Society.
The survey of 601 sole practitioners and firms with between two and 25 partners – commissioned for the society’s annual review of the previous indemnity insurance round – also showed that a significant minority of brokers continue not to disclose their commission.
More than a quarter (26%) of firms said they were targeted by scammers in the previous year, with the figure growing as firms got larger, to 50% of firms with 5-10 partners and 64% of firms with 11-25 partners. This compares with 34% and 44% last year.
Spam emails/phishing were by far the most common form of scam, followed by malware/computer viruses, cyber attacks, telephone calls/vishing and invoice fraud.
The two main responses were taking internal activity and updating existing security systems, although in 19% of cases firms contacted the police.
Some 42% of firms with 5-10 and 11-25 partners now have cyber insurance in place – and almost all of the others have at least considered it – although the figures fall for smaller firms.
Overall the survey showed that the majority of firms experienced a “smooth” professional indemnity insurance (PII) renewal process last year, with average premiums going up for sole practitioners and firms of 2-4 partners compared to the previous year, but down for bigger practices – for 11-25 partner firms, the average went from £154,356 to £127,965.
But as a proportion of turnover, the cost of insurance went down across the board, to 6% for sole practitioners and 2.9% for firms with 11-25 partners.
The majority of firms (72%) chose to renew with their previous insurer, with Travelers (chosen by 18% of those surveyed) and AmTrust (9%) the most popular, although QBE led the way for firms of 5-10 partners.
Cost of premium was again the key driver of choice for insurers, with the insurer’s financial strength the second most important factor.
The shift away from 12 month policies commencing on 1 October has not continued this year, as 30% of firms surveyed reporting having taken out a policy outside of the traditional 12 month duration, compared to 37% last year. The traditional policy start date of October is still the most popular time to renew.
The proportion of firms contacting just one broker continued to increase, to 71%, with 85% using the same broker as last year. Aon remains the most contacted broker, followed by JLT.
Satisfaction with brokers was very high (92% of firms satisfied), but while 39% of firms said their broker proactively gave the details of their commission, and 4% of firms asked for it, it was not disclosed in 36% of cases.
Where it was disclosed, commission amount was most commonly between 5% and 15%.
The Law Society’s guidance encourages solicitors to ask their broker what they will receive in commission.
“The significant lack of transparency surrounding broker remuneration in the market is unacceptable and requesting this information can be used as a ‘conversation starter’ about the level of service the broker is providing for that remuneration,” it said.
Two-thirds of those surveyed were aware that the Solicitors Regulation Authority was planning to consult on PII reform, and 44% thought change was needed – although an easier process of application, and particularly a standard application form, was the main request.
The survey found that just over a third of respondents were aware that the Solicitors Indemnity Fund (SIF) closes in 2020. It covers claims made between 1 September 2007 and 30 September 2020 that arise after firms’ run-off cover has expired.
Some 43% of respondents agreed that when the SIF’s cover was no longer available, it should be mandatory for firms to purchase run-off cover beyond the current six years.
Seven in 10 would consider purchasing six-year run-off cover on the open market if it was available, with most firms willing to pay 200% of the cost of their premium for this.
However, the median cost of run-off amongst firms remains at 300%.
Law Society president Joe Egan said: “Brexit-borne uncertainty does not appear to have affected solicitors’ PII and the average premium has actually dropped slightly.
“This continued market stability is good news for both clients and the profession, so it’s well worth shopping around for a good deal – surprisingly few firms do at the moment.”
He added that firms considering shutting down needed to factor in the additional costs of extending run-off cover beyond the prescribed minimum, “so increasing awareness of the implications of the SIF’s closure is an urgent priority”.