Professional indemnity insurance deadline could cause the closure of many firms
Firms across the country are struggling to renew their professional indemnity insurance ahead of the 1 October deadline, and some could be forced to shut shop at the end of this month.
Negligence claims against professionals are on the rise as people seek to recoup losses in the economic downturn—according to City law firm Reynolds Porter Chamberlain, 80 professional negligence cases were heard against lawyers in the high court in 2008, up from 31 in 2007. This has created a hostile environment for firms seeking indemnity cover, particularly if they have an adverse claims history or perceived exposure to future claims.
“We know of firms that are having real difficulty getting any kind of quote at all,” says Frank Maher, partner at Legal Risk, which advises law firms on risk management. “Firms that have any sort of claim problem are having enormous trouble.”
Maher says he knows of one firm that renewed for £20,000 last year and has been quoted £103,000 this year. The firm has had a potential but unchanged claim for £200,000 hanging over it both years. “Some people out there are having real grief, and some firms—real ‘names’ in their areas—will be closing down,” he said. “The high street is going to be quite different on 1 October. With just two weeks to go, it’s all a bit scary.”
Large firms and medium-sized firms that have no claims problems will be “fine”, he predicted, with the average firm’s claim rising by 5%–10%. About 500 firms could be forced to apply to the assigned risks pool, the fallback or “last resort” option for those who can’t obtain cover on the open market.
However, some firms will be unable to afford the premiums, which amount to more than a quarter of gross fees, and will have to close down.
Syscap, an independent finance provider to professional services firms, says the number of law firms asking for short-term funding to pay for insurance premiums has risen this year. This is partly because insurers have been more reluctant to grant law firms payment holidays on their premiums.
Chief sales officer, Mark Gidge says: “This year we have noticed a marked increase in larger firms asking for this finance as well as a general increase in the number of requests we have received.
“Obviously the much publicised fall in law firm revenues has exacerbated the problem.”
