Small law firms have struggled to pay their professional indemnity insurance premiums ahead of this week's deadline
Independent finance provider Syscap, which funds insurance purchase for law firms of all sizes, says it has seen a “dramatic surge” in demand from firms of up to four partners.
Philip White, CEO of Syscap, said: “This year the biggest increases in insurance premiums seem to be concentrated on the smaller law firms.
“Ironically, it is the smaller law firms that can least afford higher insurance costs as their income from legal aid work and from conveyancing is under pressure. Insurers are worried that these small law firms create more risk because of their exposure to the conveyancing market. Litigation against law firms for doing residential property work tends to follow a fall in property prices.
“Before the credit crunch a small law firm would be able to borrow from their bank to pay for their insurance premium—now the banks are reluctant to lend to small businesses of all kinds.”
Firms who fail to secure renewal automatically go into the “assigned risks pool”, an emergency measure which costs them 30% of their annual turnover (27% for sole traders).
In July, insurance broker Lockton predicted that this year’s premiums would be at least 10% higher than last year for smaller firms. Last month, insurer Chartis (formerly AIG) said it intended its new clients to be firms with 10 or more partners.
