Conveyancing firm’s demise highlights solicitors’ PI cover crisis

The plight of a small business owner forced to close his doors has highlighted the difficulty facing some classes of professional indemnity insurance.

Merlin Batchelor set up his Norwich solicitor’s firm Notary Express in 2013 using a loan from the government’s Social Fund.

The firm specialised in residential property conveyancing, and over the years grew steadily, eventually employing 24 people with a projected turnover of £1m this year.

The business was thriving and profitable. The firm had even raised over £500,000 for charity since launch. He was expecting the firm to do well next year and into the future.

But when it came to renewing this year’s professional indemnity insurance, Batchelor received a shock. Cover was declined by insurer QBE.

”Our insurer QBE, who are massively restricting the work they are writing in the market, decided we don’t fit their criteria any more and declined our renewal proposal,” the conveyancing boss told Insurance Times.

He submitted the proposal document a month before the policy was due for renewal, and received the reply a week before the deadline, initially with no explanation for the decline.

After chasing an explanation up through his broker, Batchelor finally received a list of reasons, which for him were “odd”.

”They cited ‘outside directorship’. My partner is a director, but she’s always been a director, and was last year when [QBE] took us on, so they should have been aware of that already. 

”I said if that’s a problem, I can remove her as a director, but they won’t change their mind.”

The insurer also cited the company’s financials, but they didn’t give any explanation, Batchelor said. ”Our assets and profit have been going up every year. We are making about £30,000 a month in profit at the moment.”

”The only thing I can think of is that we took out a £50,000 coronavirus loan. We took it because it was available and we planned to return it. It’s sitting in our bank account along with a £250,000 cash surplus.

Batchelor then scrambled to find an alternative provider. The Solicitors Regulation Authority (SRA) state there are 20 approved insurers offering solicitors’ PI, but in reality only five could have offered cover, Batchelor said. 

”Once you’ve crossed off insurers who don’t write business for small firms, and then you take away insurers who don’t cover firms that do more than 20% conveyancing, then you get down to about five insurers,” he explained.

”No one is keen to take on new business with the pandemic, which meant our only option was to stay with our insurer,” Batchelor said.

”The irony is, if I’d taken on solicitors in employment law or litigation - which I wouldn’t have been able to supervise properly - as opposed to conveyancing, which is my area of expertise, I would have got the renewal. We would have been considered a lower risk,” the boss insisted.

Batchelor approached the other insurers, but all declined to offer cover, because he had had to declare the QBE decline, he said.

”We weren’t a risk that anyone wanted to take, which is balmy.”

Because the firm cannot trade without PI cover, he had to make the painful decision to wind down the business, putting the firm’s 24 employees at risk in the run-up to Christmas.

One claim in eight years

The firm has only had one claim in eight years - a £45,000 cyber claim submitted last year (the firm’s annual premium was £23,000).

Batchelor offered to repay the £45,000, and even suggested a £100,000 excess which he offered to deposit with his insurer in advance.

He also offered to take out a separate cyber policy and put a list of measures that had been put in place to mitigate any future cyber risk.

”If QBE had wanted to triple the premium they could have done so. I would have paid it and we would have carried on. We’re a profitable firm and we’re doing well. Once they said ‘no’, they wouldn’t consider anything further,” he insisted. 

Batchelor spent the days leading up to Christmas trying to find places for clients’ cases. ”I’ve had sleepless nights, tears. It’s been horrendous,” he said, struggling to keep his emotions in check.

Alternative cover

After trying and failing to secure alternative cover through his broker, he tried 12 other brokers, all to no avail as they went to the same five insurers with his proposal and received the same declines.

He even looked into trying to merge with or be taken over by another business, but he said when the other firm spoke to their insurer, they had to pull out.

He approached The Law Society, which pointed him in the direction of BIBA, who in turn signposted his firm to a broker, resulting in the same response having gone to the same five insurers - more declines.

Batchelor said he wants people to be aware that there are thriving businesses that are being closed down [due to struggles obtaining insurance].

”QBE prides itself on being customer-centred and accountable. I don’t feel has been the case at all. I built up this business over eight years, and they’re just kicking it down. I’m just collateral damage to them,” he said.

”During this pandemic the government is keen for people to keep their jobs. We had 24 people employed and were seeking to take on more people. 

Batchelor insists his firm are not the only ones suffering from this problem. ”I think the problem is more widespread,” he said, adding ”the problem is there’s no accountability”. ”The insurer blames the SRA, the SRA blame the insurers… ”

QBE response

In a statement, QBE told Insurance Times that: “It is standard practice that we review each policy at renewal time and occasionally we may decide that a business no longer matches our risk appetite.

”Our decision does not preclude Notary Express from seeking coverage elsewhere and just as we have done, alternative insurers will consider this business on its own merits and against their own criteria.

”Typically, clients go to a broker and brokers acting on their behalf are charged with finding coverage amongst the many insurers available in the market.”

“Furthermore, it is the SRA not insurers that mandate the breadth of professional indemnity coverage firms must have and insurers have consistently and collectively fed back, most recently via the IUA, that the minimum requirements imposed on firms are untenable and need urgent reform.

”So far, the SRA continue to review the on-going issues but are yet to address any of the concerns highlighted to them by insurers and the IUA.”

BIBA told Insurance Times that brokers ”are doing their best to find suitable professional indemnity insurance cover for businesses seeking it.

”However the market for such insurance especially for certain professions is challenging.

”For some professions it is proving particularly difficult where some insurers have stopped offering cover for certain types of occupation perceived to present a higher risk.“