'The calm before the PI storm'

20/03/2008

The Professional Indemnity (PI) market may currently be experiencing "the calm before the storm", it has been suggested.

In its 2008 survey of the top 100 law practices in the UK, Legal Risk notes widespread speculation that the current rates for cover cannot be sustained beyond the coming year.

However, the report also observes that many law firms are currently increasing their levels of indemnity or widening the range of activities covered by their policy in order to take advantage of the soft market.

Some 25 per cent of respondents had increased their levels of cover since the 2007 survey was carried out.

This incorporated a rise in the proportion of businesses holding more than £200 million of cover, up from ten per cent to 14 per cent.

All but one of the respondents which said they had bought such a level of cover were in the top 20 firms, Legal Risk notes - adding that the marked increase may be in part due to a greater response rate from those practitioners.

Despite this, a "significant shift" is observed in the number holding more than £50 million of cover, which now comprises fewer than one in ten firms.

Legal Risk asserts that "during the period, the policy wording on aggregation of claims changed, increasing the likelihood of multiple claims being subject to one policy limit".

This may in turn have seen a rise in the proportion of firms increasing their indemnity limits in 2004, the report suggests.

"Significant" activity is reported in terms of the number of businesses obtaining cover from a different broker than last year, with one respondent revealing it has changed broker twice over the 12-month period.

A total of 14 per cent of those surveyed switched broker over the course of 2007, with the majority explaining that they did so in order to secure a better level of service.

This was the reason cited by 54 per cent of firms; 35 per cent opted to select a broker based on its position in the market, while 11 per cent claimed to be seeking a different cost of cover.

Legal Risk detects a first-time occurrence in this year's study, as all respondents without exception stated that they now limit liability in their contracts.

This compares with one-fifth of firms which stated that they did so when the same question was asked by the Law Society in 1999, the study points out.

While the query this year related to those which limit liability only some of the time, the proportion which routinely do so was found to have risen from 39 to 45 per cent.

Legal Risk comments: "We know from our experience of advising a number of these firms on their terms of engagement that limitation of liability clauses are becoming more sophisticated and involve more than a simple liability cap."

Almost one in ten of those surveyed reported that they changed PI insurer over the previous year - a four-year high for the figure.

Of those, half were also among those which changed brokers during the same period, according to Legal Risk.

This is the fifth annual survey carried out by the organisation and incorporates responses from 64 of the top 100 law firms in the UK.

Legal Risk partner Frank Maher previously identified an expectation that solicitors would be able to obtain "very inexpensive" PI cover during the 2007 renewals period.

Ahead of the October 1st deadline, he commented that a lack of major claims payouts over the previous year meant there was little reason for market conditions to harden, while enough insurers were in the sector to ensure all firms could obtain the cover they desired.

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) 2008 Adfero Ltd.

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