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Checking your safety net

The 2020/21 indemnity period looks like being a ‘hard’ market, with increases anticipated in premiums. The PII Committee shares its wisdom on how best to prepare for your renewal – and keep these costs down.

The annual professional indemnity insurance (PII) renewal period once again looms on the horizon. As indicated in the news story in the August/September Gazette (p10), it is expected that the 2020/2021 indemnity period will be a hard market, with premium increases.

It should be noted that these premium increases are not due to an underperforming Irish solicitors’ PII market, but rather global issues, including expected COVID-19 related losses, which are leading insurers to increase their base rates across the board.

The Society has been in ongoing communication with current and potential new insurers regarding changes that can be made to the Irish solicitors’ PII market to make it more attractive to insurers, thereby minimising the expected increases in premium.

The changes to the market approved by Council can be found in the Practice Notes section of the October Gazette (p59).

Firms are advised to begin preparing now for a hard renewal, and the Society will be providing comprehensive guidance to assist you with the renewal, including the following top tips.

Get the most from your broker

Brokers advise on and arrange insurance and, generally, act as the agent of the firm, unless they explicitly state that they are acting as the agent of the insurer. The insurance contract is between the firm and the insurer – not the firm and the broker.

You should ensure that you are aware of the details of both your broker and your insurer, and the capacity in which the broker is acting.

Generally, there are two types of broker, namely ‘execution-only’ brokers, and ‘advisory-role’ brokers, and you should be aware of which type of broker you have.

Execution-only brokers solely place your cover and do not advise you on the market or how best to present your firm to insurers.

Advisory brokers should give you independent professional advice and assistance in preparing the best package to send to an insurer, inform you about market conditions, advise you how best to apply for PII, and negotiate on your behalf in relation to premiums.

Advisory brokers are not just for the renewal, and should provide you with ongoing support during the year with regard to any PII queries or difficulties you may have.

You should check how many insurers your broker has access to. Some brokers have agreements to only provide cover from a limited number of insurers. Your broker should be able to give you access to all insurers in the market, to maximise your chances of affordable cover.

Good-quality service

You should keep in mind that brokers are providing you with a service, and you are their client. Your broker should pay due regard to the interests of your firm, treat you fairly, and provide you with a good-quality service.

As such, you should ask your broker what fees they get for placing your insurance and what services they will provide you for that fee, and you should agree acceptable service levels with your broker in advance of the renewal. Remember, as the client, you are entitled to demand good-quality service from your broker.

Having a long-standing relationship with your broker can be beneficial, as your broker should then have insight into how your firm is run, its risk-management practices and its claims history and, as a specialist PII broker, be able to use this knowledge and experience to your advantage by presenting your firm in a way that demonstrates to insurers that your firm represents a good risk.

If you are not happy with the service being provided by your broker, you should discuss the matter with them and consider using another broker. If changing brokers, keep in mind what effect changing your broker will have on your ability to access insurers.

You can access further guidance on how to deal with brokers on the Society’s website.

Financing your premium

As it is expected that premiums will increase for the 2020/21 PII renewal, you should put financing such premiums at the top of your ‘to-do’ list, including the use of savings or obtaining the necessary loan facilities.

Some insurers offer the ability to stagger premium payments over the year, using either monthly or quarterly payments. You should ask your broker for assistance negotiating such staggered premium payments with your insurer.

The Society partners with Bank of Ireland on an annual basis to provide a finance facility for members who wish to finance payment for their PII premium, income tax, pension contributions or practising certificates. Information on premium financing can be found on the Society’s website at lawsociety.ie/Solicitors/Representation/Member-Benefits.

Collect information now

You should start collecting information well in advance of submitting your common proposal form, as the information required can be difficult and time-consuming to find. The common proposal form stays largely the same, year on year, so you should check your completed form (and associated documentation) from last year.

If you have provided legal services in areas that insurers consider to be ‘high risk’ (for example, conveyancing, wills, probate, etc), you should prepare an outline of the steps taken by your firm to minimise risk of claims in these areas and demonstrate your firm’s experience in the relevant practice areas.

Your firm’s claims history should be obtained from your current insurer for the current indemnity period, and from previous insurers for previous indemnity periods. The insurer is required to provide this information within ten working days of receiving a request to do so, in accordance with the Participating Insurers Agreement.

You should include this claims report with your common proposal form, with comments on the current status of any outstanding claims, and outline what steps have been taken to avoid reoccurrence of the problem.

Maximise chances of cover

You should research the market and enquire from your broker about what type of firms are covered by each insurer. Many insurers have narrow underwriting criteria and will only quote certain types of firms. Enquiries should be made from your broker as to what the key issues are that suitable insurers for your type of firm will be looking for in assessing proposals.

You should not rely on your existing insurer to renew. You should ensure that your common proposal form is sent out to all insurers in the market, to maximise the number of quotations. If your broker only deals with a limited number of insurers, you should use more than one broker.

Notification of claims

All claims made against your firm, and circumstances that may give rise to a claim, should be notified to your firm’s insurer as soon as possible, and in advance of 30 November 2020. Notifying all claims and circumstances at the end of the indemnity period is referred to as ‘laundry listing’ and is looked on very unfavourably by the insurers.

You should ensure that you comply with any notification requirements set out in your insurance policy’s terms and conditions.

Are you a high-risk firm?

If insurers consider your firm to be a ‘high-risk’ firm, this can lead to refusal to quote, higher premiums, and/or higher excess. Indicators that you may be a high-risk firm include a sudden increase in the frequency/severity of claims made against your firm, deterioration in the firm’s claims history, rogue fee earners, partners involved in fraudulent activity, liabilities arising from conveyancing work, failure to implement risk-management strategies, failure to have robust cybersecurity measures in place, delay in notifying claims, and difficulties with your last renewal.

If you are concerned that you are a high-risk firm, you should seek advice from your broker on how to make your firm more attractive to insurers, including early application, providing professional and in-depth information to reassure underwriters, commissioning an independent risk review to focus on problem areas in the firm where claims have arisen, identifying the underlying causes of claims, implementing risk-management measures in relation to claims, and ensuring that all claims and circumstances have been properly notified and accepted by the firm’s existing insurer.

The common proposal form

Insurers pay close attention to how professionally your common proposal form is completed, as an indication of the risk profile of your firm. You should ensure that the common proposal form is comprehensively and accurately completed with all required documentation.

Ensure that your responses are legible, accurate, and well presented. Try to avoid submitting a handwritten proposal form. Further information on the common proposal form, including in-depth guidance on completion, can be found on the Society’s website at lawsociety.ie/Solicitors/Practising/PII.

Apply early and follow it up

There is an especially high risk this year of insurers reducing capacity, thereby limiting the number of firms that they are willing to cover. Therefore, you should submit your common proposal form as soon as possible.

Insurers view early submission of a proposal form as an indication that the firm is professional and well managed, and therefore lower risk. If you deal with more than one broker, ensure that your proposal form is only sent to each insurer once.

Follow up with your broker on the status of your application once submitted, including the identities of the insurers to which your broker submitted your application and the dates the forms were submitted.

Respond promptly to any requests for further information or clarifications from your broker or insurer. Seek regular updates from your broker on the progress of your proposal if they do not provide such information. Insurers must confirm if they are willing to cover a firm and provide a quote within ten working days of receiving a properly completed proposal form.

Accept quote promptly

Insurers are required to leave quotes open for a period of not less than ten working days. If you receive an acceptable quote for cover, do not unduly delay accepting the quote, as the quote may be withdrawn if the insurer reaches capacity. Do not delay accepting a quotation beyond close of business on 30 November 2020.

Risk and cybersecurity

Insurers particularly focus on firms’ risk management and cybersecurity procedures and policies as indications of a firm’s risk profile. You should ensure that your firm has formal written risk-management and cybersecurity procedures in place, and that these are highlighted in your common proposal form applications.

Risk management guidance can be found at lawsociety.ie/Solicitors/Practising/PII/#risk and cybersecurity guidance can be found at lawsociety.ie/Solicitors/Running-a-Practice/Cybersecurity.

If you’re unable to obtain cover

If you are unable to obtain cover in the market, you should contact the Special Purpose Fund Manager, DWF Claims (Ireland) Limited, in relation to applying to the Assigned Risks Pool (ARP) for cover.

Further information on applying to the ARP, including contact details for the Special Purpose Fund Manager, can be found on the Society’s website at lawsociety.ie/Solicitors/Practising/PII/#spfm.

Failure to obtain cover will result in the firm being declared a ‘defaulting firm’, and it will be required to close unless cover is obtained from the market or the ARP.

It should be noted that the ARP is a safety net for those firms that cannot obtain cover in the market. However, the level of cover provided by the ARP is significantly lower than that in the market, and the premiums for ARP cover are significantly higher than those in the market.

If you are considering closing your firm, you should contact the Special Purpose Fund Manager at least 60 days in advance of the PII renewal date (1 December 2020) to apply to the Run-off Fund. It should be noted that there is no penalty in applying to the Run-off Fund and withdrawing that application (in advance of entering the fund) if you decide not to close your firm.

For example, it is open to firms to make a ‘provisional’ application to the Run-off Fund, which is contingent on the firm being unable to obtain an affordable premium quotation in the market.

Variable renewal dates

Staggered or variable renewal dates have been available since 2011 in the solicitors’ PII market, up to a maximum period of 24 months. Firms are not required to have a coverage period (period of insurance for the firm) that matches the indemnity period (1 December to 30 November annually).

However, all firms, regardless of their coverage period, are required to have their broker provide confirmation of cover through the Society’s online PII portal within three working days of the renewal date (1 December annually). No firm can practise for any period of time without PII cover in place.

Keep informed, ask for help

Remember that your first port of call for help should be your broker, as your market expert representative and advisor in obtaining cover and assisting you with PII. If you are considering contacting the Law Society regarding a PII matter, first contact your broker for assistance. Only if your broker is unable to assist you, should you contact the Society.

The Society provides extensive and in-depth renewal resources through its PII webpage, which is updated on an annual basis for each renewal, including the comprehensive guide to renewal, guidance on the common proposal form, risk-management guidance, cybersecurity guidance, current and past regulations, lists of insurers and brokers, the participating insurers agreements, Special Purpose Fund documentation, and guidance for run-off cover.

The Society’s PII helpline assists firms in dealing with PII queries, and is available Monday to Friday, 10am to 4pm, at tel: 01 879 8707 or email: piihelpline@lawsociety.ie.