This is the latest in our series of guest blogs contributed by some of the many partners that we work with at katchr. Jake Fox, Managing Director of J.M. Glendinning Professional Risks, discusses some of the potential changes coming in the arena of PI insurance, and highlights the implications for both your firm and your management information.
Risk management and Professional Indemnity Insurance
In Graham Moore’s recent blog, he asked how well law firms monitor risk. Surprisingly, he stated that only 20% of respondents in a recent survey that they carried out thought their risk monitoring was “well managed and efficient”.
The 80% of firms that do not feel comfortable with their risk monitoring should be aware that there are significant changes being muted to the provision of Professional Indemnity Insurance (PII) for law firms. These changes may result in risk management processes being put under scrutiny by insurers like never before.
The SRA will announce another wide-reaching consultation around the provision of financial protection for law firms this spring. I would encourage all firms to have a read of the consultation when it is released and to at least form an opinion of the potential impact that any proposed changes may have.
Changes to PI insurance for the legal profession
There is speculation that the consultation will include some recommendations that will represent the most radical changes to PII for the legal profession since the Solicitors Indemnity Fund (SIF) was disbanded back in the year 2000.
It has been suggested that some of the proposed changes could be as follows:
• Lowering the compulsory limit of indemnity to £500,000;
• Allowing the potential for an aggregate limit of indemnity rather than an each and every claim limit;
• Removing cover for cyber-related thefts from client account;
• Removing cover for claims made by more sophisticated clients such as financial institutions;
• Removing cover for conveyancing work completely;
So what will this mean for your firm? In my opinion, the profession has been very lucky to have the protection of the minimum terms and conditions (MTC) since 2000, and in some respects, the MTC has ended up providing cover for law firms (and their clients) that was never really intended.
The advent of client account cyber frauds is the most recent and relevant example. There is a clear agenda among some participating insurers and to some extent the SRA to ‘water-down’ the MTC and to allow law firms to pick and choose their cover. The SRA clearly feels that there needs to be a more flexible approach to PII in order to ensure that they can compete with other regulators that are increasingly threatening their place in the legal services industry.
New challenges ahead
While it is hoped that these changes may have a positive impact of premium levels, particularly for smaller firms, are they really a good thing for the profession as a whole, or not? It may well be for the firms that have their houses in order, but for others, this will create new challenges. In reality, my view is that this will lead to insurers scrutinising law firm’s policies, procedures, systems and processes more so than ever before.
Most members of the senior management within firms can confidently talk about risk management when pressed to do so, but how many firms can provide real and meaning management information (MI) to back this up?
My view is that more insurers will want to see concrete evidence of embedded risk management processes and MI that is analysed and understood that backs up these processes. If you are not already thinking about this, then I would encourage you to do so soon.
It is worth noting that if any of these changes are approved then they will be implemented in 2018, so no-one can afford to be complacent. Plenty of food for thought!
Jake Fox, Managing Director, JM Glendinning (Insurance Brokers) Professional Risks Limited
Jake has been arranging Solicitors’ Professional Indemnity Insurance since the abolition of the Solicitors’ Indemnity Fund in 2000. He has worked with legal practices of all sizes, from Top-100 firms through to sole practitioners.
His Professional Indemnity career began in the London Market, before starting a new branch office to serve professionals in the North. He now combines the technical expertise he gained in the London Market, with his local knowledge of the legal profession to find the right cover for clients.