Brokers must convey lessons from tough PI renewals

Law firms hit by rising professional indemnity (PI) insurance rates need to work with their brokers to better evidence the steps they are taking to enhance risk management.

John Kunzler, risk manager, Claim Avoidance and Reduction at Marsh JLT Specialty, told Insurance Times that the annual renewals at the start of the month had seen rates rise across the board.

The premium increases were driven by underwriters’ continued concerns over conveyancing risks and subsequent exposure.

“The renewals went as we expected,” he explained. “The concern over conveyancing exposures is still there.

“We have seen some underwriters put a limit, of say 20% on the level of conveyancing a firm can carry out, which is something we have not seen previously.”

Kunzler added: “There have been three of four sizable claims around off plan investments particularly for international investors where the law firm has liaised with the developers.

”Some law firms that have acted for foreign investors buying off-plan development plots in the UK are understood to have generated losses in the millions of pounds and this has clearly meant that conveyancing work is being viewed in a new light.

Cautious approach

“While we have not seen a rise in the claims around mortgages, there is still a concern with regards to the exposure, so underwriters have taken a cautious approach.”

He added the rising number of cases of identity theft has led to underwriters looking at the checks and balances law firms have introduced to combat falling victim.

“For firms that are claims free there has been an effort by underwriters to increase the premiums, but they are in a better position to face the market and look to obtain a better rate,” explained Kunzler. “Firms who have had claims have faced a tough time at renewal. There is a reluctance from underwriters to seek new business and especially business that comes with a claims history. There is a great focus on the firm’s risk control and risk management procedures.”

Kunzler added Marsh JLT has developed a new system with which it could better identify better performing law firms to aid the underwriters’ pricing decisions.

“For those firms buying more than the required two or three million pounds of cover, excess layer underwriters have similar concerns and unsurprisingly display similar behaviour to the primary underwriters.

“We are seeing these primary rates increase by 25% but for those wanting that excess layer, rates have increased by 50%-100%,” he added. “We have been working with our clients throughout the year and while rates increased last year many firms have been budgeted for an increase this year. Those who have not will have received a shock.”

For the smaller firms of up to 20 partners it has been an issue. In terms of the excess layers rates have been falling for 12 years so the correction in pricing has been more noticeable for firms.”

Kunzler added brokers had to work with firms if they were to seek any latitude from underwriters.

“Firms need to develop their risk management strategy and plans and evidence not only that these are in place but the steps they are taking throughout the year to ensure that their staff understand what is required and are putting these plans into place,” he explained. “It is no longer a case of simply providing the risk management strategy in the weeks running up to the renewal.

“Brokers need to continue to work with the firms to highlight the market’s thinking and what is needed to enable the broker to obtain the most favourable cover.