Insurance Indemnity Cover

Back in 2006 I wrote this:

"most firms appear to have seen a reduction in their premiums. The general view seems to be that this insurance is getting too cheap and that premiums are being driven down only by competition among the insurers. The market could change significantly next year if insurers decide that the business is simply not profitable enough."

Since then the market has become visibly more sophisticated. Underwriting in the early post-SIF days was pretty un-refined but these days completing your proposal can take several hours, although as our record keeping on things like claims has had to become so much more comprehensive some of the necessary information should be to hand.

Despite reports that the total premium take from this sector languishes below the cost of claims we have not seen premiums rise much in recent years. I am guessing that as underwriting gets more refined those firms with poor claims histories are suffering. Your own claims history has become a vitally important element in controlling costs and fee earner supervision has never been more important. Lexcel can also demonstrate to an insurer that you are running a tight ship and so help to keep premiums down.

I am now convinced that a close working relationship with a sound broker is te best policy. A partner who knows the market inside out will guide you through renewals and claims and will be able to advise on the balance between cost and quality.

1) Choose your broker with great care. You may already have a sound working relationship with a firm and prefer to stick with it but if not take time to consider more than one and select the right firm.

2) Consider a specialist. In 2000 many smaller firms simply asked their existing local brokers to obtain cover for them. This resulted in two or even three-tier arrangements between client and insurer, as many of these local brokers simply went to specialists themselves. When negotiating a premium many brokers will sacrifice some of their brokerage to close a deal, but if that brokerage is shared it is much harder to drive such a bargain.

3) A specialist broker knows this market. They understand solicitors' business well now, after years of placing cover, and can find insurance for all the variety of risks presented. Insurers are getting picky about what risk they will take on and we hear of companies declining to quote where they see a heavy proportion of revenue from conveyancing. A good broker can guide you throuhg such traps.

4) Drive a bargain with your broker. Brokerage typically runs at 15-20% of premium and when you consider that a typical high street firm could be paying £70,000 it makes for a significant sum of money, paid, of course in practicality, by the client. I know that some brokers will discount this but often only when pressed - after all, they are commercial operations driven by profit. You may be better to sit down with them early and discuss terms such as a fixed fee. Many will happily do this for £3,000 to £5,000 and then all premiums will be net of brokerage.

5) Shop around for finance for the premium. I have often found a one-year fixed term loan from the bank to be cheaper than an insurer's or a broker's offering, although you may want to be mindful of the firm's total exposure to its bank. If this is a dificulty try one of the specialist funders that will be very keen to get your business.

6) Look for more from your broker. You could well be offered risk management training and audits, for example, as part of an overall package and, if so, these could be valuable to you.

7) Actively pursue risk reduction steps. Whether or not you want to go for something like Lexcel, you will still be aware of the detailed questions you answered in your last proposal. Dig out your copy and put specific steps in place so that next year you can honestly give the most advantageous answers.

Anything else?

For a start, read your policy. You may be congratulating yourself on a lower premium but make sure that you still have all the cover you need.

Make all your fee earners aware of your levels of cover. Conveyancers, for example, need to know if they might ever be at risk of going over your maximum claim figure.

Look out whenever you take anyone one. Issues such as successor practices can arise if you are not very careful and past claims records do need to be established. Don't be shy of asking candidates to give you their claims histories and check them out (at the very least, if you do this and record the results carefully you will have the option of firing somene who later turns out not to have been honest with you).

If you have significant doubts about anything in this area take professional advice from a specialist such as Frank Maher at Legal Risk. There will, of course, be a fee to pay but the potential cost of getting something wrong could be horrifying. 

IMPORTANT NOTE

All the opinions expressed are those of the contributors, are based on personal experience and are given in good faith. The ideas and suggestions here have worked for us but every situation is different. As a result, we are sure you will understand that no liability can be accepted for anything that may arise from following advice on this site.