How to achieve affordable PII insurance for law firms


With professional indemnity insurance (PII) renewals due in October, many law firms will struggle to find affordable cover after a number of high profile failures among unrated insurers.


The insolvencies of Lemma and Quinn, plus the administration of Bavla, who have insured many smaller or high risk practices, have created serious concerns that some practices may no longer be able to obtain PII at viable rates – and ultimately have to cease trading.


Keeping in good shape to get insured


So what must a law firm do, either to get insured or obtain a more cost-effective quote?


The importance of sound financial management can’t be overstated. Robust controls must be in place covering billing and debt collection. Healthy net profits need to be maintained or improved, which means overheads must be carefully managed and reduced where possible. A drawings policy should be in place for the business owners and cashflow regularly reviewed.


The importance of refining risk management


Strong risk management will also be key to securing cost effective PII. If your practice has obtained Lexcel or Conveyancing Quality Scheme accreditation, then you will already have set up risk management systems – although all firms should be proactive in a number of areas:


– Strategic planning for the future


– Analysis, review and assessment of your complaints and claims records


– Implementing a business continuity plan


– Operating a firm-wide diary system to record critical dates and deadlines


– Using an enforceable email policy


– Risk-assessing all new instructions before accepting appointments


– Vetting all new clients and issuing appropriate client care letters


– Conducting a firm-wide conflict search on all new instructions


– Completing file audits across all fee earners, including partners


– Having a robust client account payment authority system.


Take a careful look at your insurer


As well as making sure you are in good shape internally, you should also carry out an assessment of your insurer.


If your insurer becomes insolvent you have four weeks to rearrange cover, which raises the potentially ruinous prospect of having to pay double premiums, as well as not having claims paid out under the failed insurance cover.


The SRA has issued guidance suggesting firms assess the financial stability of a potential insurer – so you need to check out insurers’ ratings with the ABI before signing up. It’s also important to keep in mind that insurers on the list published by the SRA are neither vetted nor checked for capital adequacy. And remember that from October 1 there will no longer be the Assigned Risks Pool run by the Law Society.


Karen Hain is a partner and head of professional practices at Moore and Smalley. If you would like to discuss your practice’s insurance position, financial management, or any other professional practices matter, please call Karen on 01772 821021.