The spring renewal season saw law firms pay a lot more for their professional indemnity insurance (PII), with the surge in conveyancing work a concern and contentious probate an increasing problem.
A report by broker Lockton said that although only a third of firms were responsible for claims, their value exceeded the premiums collected across the whole market.
In its review of spring 2021 – during which it is estimated that around a quarter of firms now renew – Lockton said the average increase for the primary layer of cover was 27%, compared to 17% in both spring and autumn last year.
On average, practices with more than four partners saw an increase of more than 30%.
For practices that were claim free, premiums went up 23%, rising to 41% for those with claims records; two-thirds of firms had been claim payment-free in the previous six years, or 86% if they did not undertake conveyancing work.
Lockton recorded an average premium increase of 36% for the next working layer of cover, while an increasing number of its clients – 5.5% – were co-insured, which is becoming more standard as firms get bigger.
Aside from the pressures imposed by Covid and Brexit, the PII market was tough because claims were exceeding the premium collected, “so the insurance market was forced to implement pricing adjustments to survive”, wrote Lockton partner Brian Boehmer.
He continued: “Unfortunately, this means that even practices that had remained claim free were quite often impacted by increases imposed by insurers.”
While the volume of claims has remained “relatively consistent”, there continues to be an upward trend in the severity of losses and claims – this was happening to practices “of all shapes and sizes”.
The stamp duty holiday has led to a surge in conveyancing work, which Mr Boehmer said “increases the likelihood of more claims materialising”.
“There are also the increased risks that a fixed deadline creates, especially if this results in fee-earners rushing work, or worse – such as circumnavigating the risk management steps that you have in place.
“Another risk could be to forget to appropriately warn clients that you cannot guarantee that the transaction will be concluded in time.”
The report said contentious work was growing across the profession and in particular contentious probate.
“Naturally, this means that practices are getting probate work wrong. When you factor in that, according to the Office of National Statistics, pre-pandemic wealth and assets have been steadily increasing, it stands to reason that getting this wrong could prove incredibly costly.
“With modern-day families increasing in their complexity, this is becoming a much more difficult practice area and perhaps one where more care needs to be taken at the outset in the drafting of a will.”
Other issues of particular interest to insurers at the moment, Mr Boehmer wrote, were how firms were managing their home-working lawyers, including partners, along with associate wellbeing.
This both gave underwriters “an insight into what type of practice you are”, and more directly could affect firms’ claims records.
Mr Boehmer warned that “the pendulum of power is firmly with insurers which makes negotiations far more protracted and much tougher”.
The October renewal would see premiums rise again, significantly for firms whose risk profile has worsened. “If your risk profile remains unchanged, we anticipate premiums going up but not as dramatically.”
But there was still an “active market”, he added, “evidenced by the fact that we placed business with more insurers in the spring than we were able to in October 2020”.
The data was based on Lockton placing more than 530 practices in spring 2021, generating £47m of gross written premium into 14 different compulsory primary insurers.