Insurance survey findings reveal clouds on the horizon
Insurance environment changes mean law firms need to take a close look at their own arrangements this year, the Law Society of England and Wales said as it released the results of its annual professional indemnity insurance (PII) survey.
Worryingly, only 47% of firms are aware of the closure in 2020 of the Solicitors Indemnity Fund (SIF), which has provided the profession with post-six year run-off cover since the move to a market-based system of PII in 2000.
Reflecting on the survey results, Law Society president Christina Blacklaws said:
“Just one third of small firms are aware they are approaching a cliff edge in relation to long-term run-off cover, and they are the part of the profession most likely to suffer if they have not arranged a suitable substitute.
“We have been warning about the potentially serious implications of the loss of SIF for many years. Firms that are going to close without a successor practice need to think about the kinds of liabilities they might still have outstanding when their mandatory six-year run-off cover ends. They may need to factor in the additional costs of extending run-off cover to avoid being sued in a personal capacity.”
Noting growing evidence that the cost of insurance premiums may soon increase, Christina Blacklaws added:
“The findings reinforce an increasingly widely held view that the market is hardening, and PII prices could well rise next year.”
Nearly a third of firms reported being targeted by scammers in the last year.
“Only 6% of scams resulted in a data breach, and just 3% led to financial loss, but we must not become complacent because the effects of just one successful attack can be devastating for clients, law firms and staff,” she warned.
“Some insurers now ask about the measures firms have taken to protect against scams, including their security and IT systems. The Law Society provides training and resources to help solicitors prevent scams and keep up to date on this important issue.”
The 2017-18 survey found:
- The average premium was 0.3% lower this year, down from a 1.3% drop in 2016-17.
- 76% of firms remained with the same insurer they used in the previous renewal round.
- 79% of firms asked for just one quote, while 18% requested two or three.
- The strongest drivers for choice of insurer were recommendations from brokers, lower premium costs, and having been happy with the insurer in the past.
- 66% of practices chose traditional 12-month policies, but an increasing proportion are opting for longer periods. More than a quarter of firms have now chosen 18-month policies, and the number of firms opting for 24-month policies increased from zero in 2016-17, to 5% in 2017-18. Purchasing a longer-term policy is a sensible way to lock in a low price in the face of a hardening market.
- The median cost of mandatory six year run-off cover has fallen to 250% of annual premium, from a historic high of 300% in 2016-17.
- 32% of firms reported being targeted by scammers in the last year, with spam emails and phishing attempts by far the most common approaches. This is an increase of almost a quarter on the proportion of firms reporting having been targeted by scammers since 2016-17. However, it is likely that many more firms were targeted without their knowing, as the National Cyber Security Centre found that 60% of law firms had “an information security incident in the last year”.
- 94% of scams were without consequence, with only 6% resulting in a data breach, 3% in financial losses, and just 1% of losses being characterised as “serious”.
- PII claims were made against 10% of firms, down from 13% last year.
Kindly shared by The Law Society