While the legal sector looks to move on from the pandemic, firms are never short on challenges. This year鈥檚 Bellwether Report revealed the biggest threats to small law. Among these, professional indemnity insurance (PII) was seen as the greatest concern thanks to unprecedented costs and burdensome renewal processes.
Small law firms are used to annual hikes in PII premiums and are tuned to the challenges these bring. However, data from this year鈥檚 Bellwether report indicate firms may have faced a steeper increase in prices.
Small and SME firms saw an average increase of around 30%. This is 15-20 percentage points higher than findings from Miller in May this year.
PII also presented yet more problems for small law as firms reported that renewal processes have become a burden. Lawyers from a variety of backgrounds said the process behind PII renewals is time-consuming and overly complicated.
Firms must now provide deeper insights into how they run their business to satisfy insurance providers. One lawyer noted:
鈥淧reviously, my renewal would involve a five-page form that took two hours. Now, I've set aside two days to do this. Insurers will restrict how we operate, handle cyber security, and monitor our staff. I think all of that's going to be problematic.鈥
Lawyers attributed increasing premium prices to a variety of reasons. Beyond the usual annual increases, some suggested it was due to certain practice areas carrying more risk during the covid-19 pandemic. Others cited market hardening.
Insurance markets typically cycle from hard to soft. In a soft market, supply outweighs demand and insurance premiums fall, resulting in a buyer鈥檚 market. In a hard market, the opposite is the case and businesses are subject to stricter standards or policy terms.
Today鈥檚 hard market has been brought about through a variety of global factors. A key factor in this was Lloyd鈥檚 of London reassessing the PII sector鈥檚 profitability and pushing providers to increase premiums. As a result, a number of PII providers pulled out of the market. Those that stayed placed new restrictions on cover and increased premiums.
As PII is required by the Solicitors Regulation Authority, small law firms have had no choice but to bite the bullet and take on the increased costs.
Ultimately, firms need to be strategic about how they approach renewals. Today鈥檚 PII market requires long-term planning in the run-up to renewals and thorough discussions with underwriters and brokers to keep the process under control.
Business owners will also have to spend money to save money. While investing in new technology to meet compliance needs can be costly, it can keep premiums down and ensure your firm is more secure. Some lawyers also noted membership of professional groups, such as LawNet, can keep premiums competitive through group-buying power.
Simply put, firms can鈥檛 鈥 and shouldn鈥檛 鈥 avoid setting more time aside to deal with PII. For the full picture, read
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