Most solicitors’ firms still renew their PII on the old common renewal date of 1 October. This has always created something of a bottleneck, with brokers and underwriters rushing to process proposals in time for the deadline, but the problems are more pronounced during a hard market. Given that conditions were already taking a turn for the worse in 2019, the additional uncertainty created by Covid-19, the lockdown, the looming recession, and question marks around the outcome of Brexit trade negotiations, mean that October 2020 could be the most challenging renewal period for solicitors since the move to the open market back in 2000.
The Law Society’s PII Committee maintains a dialogue with the insurance industry, and at a roundtable discussion in mid-July, brokers and underwriters set out some of the new difficulties that are likely to confront solicitors as they seek cover this October.
The first and most important point is that firms should already be talking with brokers about finding cover. If you have not yet done so, make it a priority now.
Insurers are understandably reluctant to take on new risks at the moment, and many are not actively seeking new clients. Insurers’ more cautious approach means that firms will be expected to provide much more information up-front on this renewal, including details about risk management, the firms’ finances, evidence of ongoing profitability and continuity planning. Firms will be required to answer additional questions about how Covid-19 and the lockdown have affected their business including use of the furlough scheme, plans for redundancies, supervision of home workers, and the steps that have been taken to minimise risk.
Take care filling in forms
It is a sellers’ market now, so you will need to impress prospective underwriters that you are a good risk. In the same way that you would not look favourably on a job applicant whose CV is riddled with errors and omissions, underwriters take a dim view of poorly completed proposal forms. Make sure your answers are full and accurate. Check with your broker to see if they are sufficiently comprehensive to enable underwriters to consider your proposal in the best possible light. Ensure that all requested documents are included, and up to date. Don’t hold back in expanding your answers to provide context for certain statements that might otherwise make your proposal less attractive.
Levels of premium
Almost all firms can expect to see substantial increases in their premiums this October (especially if you are coming out of an 18- or 24-month policy). Evidence from the April renewal has revealed that larger firms faced some of the biggest increases in premiums, especially in the layers above the minimum. According to one study, firms’ premiums increased by an average of 15% this April, but firms with turnovers of £50-£100 million saw increases of around 40%. Firms should brace themselves for average increases of around 30%, but those with bad claims records should expect far higher increases.
Some areas of practice, such as conveyancing and criminal law, have been particularly badly affected by the imposition of the lockdown, so if you find yourself in such circumstances, talk to your broker about how best to present yourself with prospective underwriters.
Manage your finances
Due to increased premiums, review your budget and make the necessary adjustments. Even if you have not previously sought premium financing, it may be worth considering in the current circumstances. PII premiums can be a hefty up-front cost and being able to spread out payments over a longer period will help with cash flow.
Arranging finance this year will be more challenging than it has been historically, so don’t wait until you get your quote to make enquiries. Do it now, in tandem with your PII renewal.
One possible source of finance for some firms could be subsidised loans in the form of the Coronavirus Business Interruption Loans Scheme (CBILS). CBILS provide businesses, with an annual turnover of up to £45 million, access to loans of up to £5 million, repayable over a period of up to 6 years. The UK government will meet the cost of fees and interest payable to the bank in the first year, and most lenders do not require the borrower to begin making any repayments until year 2. This scheme closes to new applicants at the end of September 2020.
The Law Society has produced advice on how to go about seeking cover in light of the pandemic and lockdown. This will be updated as necessary over the coming months.
Nick Gurney-Champion, Chair of the Law Society’s Professional Indemnity Insurance Committee
Small Firms: Top tips for financial survival – Webinar
Tuesday 18 August 2020 from 2.00pm – 3.00pm
The Law Society is hosting an online seminar on what you can do to mitigate some of the financial challenges small firms face over the coming year.
Find more details here.