PII: Now is the time to act for spring renewals
The Law Gazette
23 November 2020
In August, the Law Society urged law firms to act urgently to renew their professional indemnity insurance (PII) in time for the October deadline, as a hard market for insurance, together with uncertainty around the pandemic, lockdown, and Brexit negotiations, would make it harder for the profession to find cover.
But not all firms have PII renewals in October. The substantial minority with an April renewal date will need to start looking for cover this month.
Most firms experienced substantial premium increases in October – an average of 20% – and we expect hard market conditions will persist through to next year’s April renewal and beyond.
Law Society research conducted in August found that 86% of firms used the government’s coronavirus support schemes, 84% deferred VAT payments, 26% used coronavirus loans and 12% delayed their PAYE, NIC and corporation tax payments.
Firms’ projections were also affected by the pandemic, with 78% revising their budgets.
The legal profession is not alone among sectors having to make tough business decisions to remain viable.
As 1 April 2021 approaches, firms will no doubt still be facing financial challenges because of Covid-19 and many will find it hard to afford the higher-rate PII premiums.
For firms that fear they may not have a viable future, and are contemplating their April PII renewal, we urge them to engage in open dialogue with their broker and take advice now, so that they can develop a proper understanding of the options.
Not doing this now increases the risk of a disorderly closure.
We have suggestions on how firms can prepare for an April renewal, and alternatives for those concerned about the future.
The first step firms can take is to engage the services of professionals who can provide a ‘health check’ and advise on the future viability of the business.
Any form of advice should be taken early. If this step is left too late, firms may be limiting their opportunity to find and implement a workable action plan.
Look at your PII spend
Covid-19 has forced the profession to look at its overall expenditure and PII premiums must be treated in the same way.
PII premiums are significant expense for firms, so it is prudent to consider what you can do to control this spend and keep it as low as possible. Is your broker providing you the best representation? Does your broker have direct access to a range of markets? Is your firm being presented in the best possible light to underwriters?
The Law Society has a useful buyers’ guide for PII for firms.
Closure and successor practice
Closure may unfortunately be the only realistic option for some firms. If this may be on the table, it is better to have a planned and orderly closure as opposed to a chaotic one precipitated by the unavailability or unaffordability of PII.
The Law Society recently published guidance on firm closures.
Finding a successor practice can provide a neat solution for a struggling firm. If your practice closes without one, then the run-off provisions in the policy are triggered and a run-off premium is payable.
Becoming a successor practice can provide some positives for firms, so think about what you might be able to offer a potential successor – such as a strong local following, loyal client base, niche practice area or will bank – which could fit with another firm’s profile.
Start that dialogue now, engage with a firm that could be interested and begin to look at the long-term future of your practice.
New practising structure
The Solicitors Regulation Authority (SRA) introduced new practising structures that would enable solicitors to deliver legal services without the expense of establishing and maintaining an SRA-authorised practice.
Solicitors can now market themselves as ‘freelance’ and offer legal services to the public from non-SRA-regulated entities.
‘Freelance’ solicitors must have “adequate and appropriate” insurance if they undertake reserved legal activities, but otherwise there is no PII requirement if these practising arrangements are adopted.
However, we recommend solicitors to remain cautious, even if your work has been low risk before and you have never had a claim, things can go wrong. There are also questions around what constitutes “adequate and appropriate” insurance. The SRA’s guidance is thin as is the availability of suitable insurance products for freelance solicitors in the market.
Three months ago, the Law Society urged firms to act early to secure PII. We once again press the profession to address issues early and take advice if your firm is financially challenged.
Please see below for organisations you can contact if you have either personal or company issues relating to the closure of a firm:
The Law Society – Practice Advice Service
Solicitors Assistance Scheme
David Greene is president of the Law Society
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