Professional indemnity insurance (PII) premiums will rise again this year but by less than in 2022, when it was 12% across the market, Law Society research has predicted.
It also found that only 28% of firms bought cyber insurance, despite the change to the Solicitors Regulation Authority minimum terms and conditions in 2021 to explicitly exclude first-party losses (those affecting the firm) resulting from a cyber-attack.
The Law Society commissioned Mustard Research to study the experiences of 600 law firms with up to 25 partners renewing their PII last autumn and into 2023 and found that the median premium paid by all law firms was over 12%, up from £14,200 to £16,000.
But those handling conveyancing work saw a 25% premium hike, from a median of £40,000 to £50,000.
The rise was biggest for firms with five to 10 partners at 23%, with median premiums rising from £113,454 to £140,000. After them, it was sole practices, with a rise of over 15%, from £6,410 to £7,383.
The increase in the median PII premium paid by firms with two to four partners was 11% (to £35,420) and by firms with 11-25 partners 9.7% (to £248,375).
As a proportion of turnover, conveyancing firms spent 8% on their PII premiums, and sole practices and firms with up to four partners 6%, compared to an average for all law firms of 5%.
Researchers said that, for the last three years, the PII market in England and Wales and globally had been “hardening at a rate not seen since 2001/02”, with reduced capacity, limited competition, increasing premiums and “insurers taking a highly selective approach to the risks they choose to cover”.
However, stability appeared to be returning to the market, which “does not necessarily mean premiums will decrease, but most firms not offering high-risk services should see no more than single digit percentage increases at their next renewal”.
The median excess on claims last year was £5,000, with larger firms paying “substantially more”. The report said: “It is possible firms are agreeing to higher excesses to reduce premiums or to get an underwriter to agree to provide cover.”
Researchers said Travelers remained the bigger player, insuring 28% of law firms and almost doubling its market share since 2018. Sompo International was the most popular choice for firms with two to four partners, with QBE the preferred provider for the largest firms.
The proportion of firms which switched provider in 2022/23 was 13%, with sole practitioners making up 43% of those who switched and firms with up to four partners 49%. A fifth of firms reported purchasing top-up cover.
Only 56% of firms said they found the renewal process very or fairly easy – significantly less than the last research five years ago, when it was 76% – while small firms, those where the majority of partners were from Black, Asian and minority ethnic backgrounds, and those arranging more expensive cover, were more likely to find the renewal process difficult.
With small firms, Mustard said, underwriters were “requiring more information, being less flexible on the ratios of work they are prepared to consider, less willing to take on new firms and more willing to impose minimum premiums, higher excesses and personal guarantees for firm directors”.
Fewer than one in three firms (28%) took out cyber insurance, with sole practitioners the least likely (9%) and 11-25 partner firms the most likely (83%).
Lubna Shuja, president of the Law Society, said: “Although stability is returning to the market, the process of buying PII has become harder – with more paperwork involved and underwriters showing greater aversion to risk.
“We advise firms to start budgeting for increased premiums and perhaps consider premium financing as a way to spread costs through the year. We also recommend firms start the renewal process early; around three months before your renewal date.”
Ms Shuja said law firms should give “serious consideration to purchasing cyber insurance”.
She went on: “Considering how much more work is being conducted online post-pandemic, the low take-up is concerning.
“Cyber insurance policies vary in scope and coverage, so it is wise for firms to understand the potential threat and exposure.”