Let us cancel PII policies for non-payment, plead insurers

The Law Gazette

3 September 2020

Insurers have warned that indemnity cover could become unsustainably expensive unless they are allowed to cancel policies on the grounds of non-payment.

Representative body The International Underwriting Association says its members should have the right to cancel cover if premiums are not met, and for the payment of excesses on a policy to be mandatory. Where excesses are not paid, it is proposed that these are offset against any claims payouts.

The group states that insurers are seeing an increase in requests for payment of premiums by instalments, as law firms struggle during the pandemic. It insists flexibility can be discussed, but without the option to cancel policies, the risks taken on by insurers are reaching ‘commercially unacceptable levels’.

In an open letter to the legal profession, the association said that without such measures, insurers will become more selective in the risks they accept, with law firms facing restricted choice and higher costs as a result. This is likely to come to a head with the forthcoming October renewal date, when thousands of firms will seek renewed cover but could face inflated bills.

Chris Jones, director of legal and market services, at the IUA, said: ‘Many solicitor firms are facing economic pressures and we have already seen an increase in requests for payment of premiums by instalments.

‘Insurers have shown their willingness to work with other professions that are struggling to mitigate the short-term economic effects of Covid-19, but the complete lack of any protection around payment of premium and excesses makes it far more difficult to do this for solicitors.’

The letter sets out that the credit risk insurers are expected to underwrite for solicitors is not seen in any other regulated profession. It is even suggested that current rules preventing cancellation rights, which include for six-year run-off cover, are contrary to established contract and insurance law principles.

The IUA says it has been engaged with the Solicitors Regulation Authority for months about changing the rules. The sticking point appears to be the SRA’s insistence that consumer protection remains the priority. But the association says that the inability of insurers to manage their policies undermines the system in any case, and will ultimately lead to consumer detriment with firms pull out of the market.

The SRA has established a process where firms must report any times they cannot pay premiums, but the IUA says this has made little difference and that insurers continue to assume all the risks of non-payment.

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