Risk of ARP rises as PI becomes harder and more expensive to source - Professional Indemnity insurance for solicitors

29/09/2009

Written by Marc Riches

With the renewal deadline for Professional Indemnity (PI) insurance rapidly approaching, law firms of all shapes and sizes around the country are likely to have spent the past few weeks contacting insurance providers for cover. However, as was the case in 2008, the volatility seen in the wider financial markets may well make the obtaining of PI cover a more difficult - and expensive - process.

Indeed, Muireann Bolger, writing in an article for the Insurance Times, points out that although there have been some reports of the economy beginning to strengthen, the overall fragile financial climate means many insurers are taking a more pensive approach towards providing cover for solicitors. And in an effort to reduce risk - as disgruntled companies and individuals look to make claims against solicitors in an effort to recoup money lost - this has seen many insurers increase the cost of PI insurance for solicitors.

Such steps comes as the publication points towards research carried out by law firm Reynolds Porter Chamberlain revealing that the number of negligence claims heard at the High Court stood at 80 last year, an increase of 158 per cent from the 31 cases recorded during 2007.

And it is small and medium-sized practices that are taking the brunt of this, as last year Aviva refused to provide cover to those firms with ten partners or less. Meanwhile, Zurich reduced its client base by a fifth, resulting in its overall market share for 2008 falling to 17 per cent.

As a result, obtaining PI cover could well be a more difficult and expensive process for solicitors. This can be seen in the case of Joe Golstein, partner of two-man law firm B&G Solicitors, who reveals to the publication that in 2007 his organisation's PI quote stood at £7,000. The following year this had risen to £20,000, before surging to £80,000 - in addition to a £10,000 excess - for this year, despite Mr Golestin pointing out the practice has not had to make any claims on its cover.

This marks a particular contrast to the overall trend seen in recent years where solicitors put off obtaining cover until the last possible minute in a bid to secure a competitive deal and year-on-year insurance costs changed by only marginal amounts.

Consequently, those firms which find themselves unable to get cover are forced to move to the assigned risk pool (ARP), resulting in even further costs and a mark left on their company report forever. And although the publication reveal that between 20 to 30 practices have typically found themselves in the ARP year this decade, 2008 saw this rise to 150.

But as the difficulties in the wider economy have continued to rumble on in the subsequent 12 months since the October 2008 PI deadline, it is thought that even more solicitors could find problems in getting cover.

"Normally, going into the ARP meant you were too lackadaisical to cover yourself properly. But last year there were people in the ARP who did everything they could and they were still not presented with an appropriate offer," Clive Sutton states.

Claiming some insurers are looking to manage risk more carefully, Mr Sutton - a sole practitioner and honorary secretary of the Solicitor Sole Practitioners Group - tells the publication that the constraints of the market and the renewal process itself could mean solicitors find themselves either with a policy that is "very expensive" or without cover at all.

The Hampshire-based practitioner adds that although the number of solicitors who went into the ARP pool in 2008 was higher than normal, "it probably will be worse this year". And doing so could prove to be solicitors' financial detriment as the ARP premium accounts for around a quarter of gross fees - "an unmanageable amount".

It is due to such concerns about rising costs and the difficulties in obtaining cover that the Association of British Insurers, the Law Society and the British Insurance Brokers' Association recently published guidance for solicitors on the PI renewal process.

Such a document Desmond Hudson, chief executive of the Law Society, claimed will look to "alleviate some of the pressures experienced in the renewal process and provide solicitors with a point of reference for their dealings".

But with uncertainty as to how long the economic crisis will last - in addition to what its full effect will be - seeking out guidance on PI insurance as quickly as possible may be an advisable move for solicitors to take.

Click here for more information about Professional Indemnity for solicitors.

Click here for more information about Professional Indemnity in general.

PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

(c) 2009 Adfero Ltd.

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