LawNet firms, however, are again set to ‘pool’ the placement of the purchase of their PII programmes. At a total of £1.2 billion, ours is one of the largest placings in the legal sector.

The LawNet PII scheme was launched in 2000, following the demise of S.I.F with the objective of providing a long-term, stable insurance solution of a quality and cost that member firms could not achieve by acting individually in the market.

Pooling premium income over the longer term with a strong insurance partner delivers several benefits for our firms: -

• a steady approach through the insurance cycle
• drives competitive premium negotiation
• stability and security in claims management and settlement
• reduced administration for firms.

Banding together just for the sake of it doesn’t impress insurers though, especially not in the current market. So apart from the big premium spend, insurers are also attracted by the quality and risk profile of the LawNet group, with all firms independently assessed every six months to the LawNet Quality Standard which is ISO 9001 accredited. LawNet is one of the few such groups where quality assurance is mandatory.

Market conditions for solicitors' PII renewal are expected to be tough again this year. Contributory factors include the background of continuous losses from the property driven claims cycle in recent years and losses under the assigned risks pool (ARP) which continue to rise, driving insurers to take a cautious view of risks underwritten.

I have always argued that, if a firm does stand on its own, is of a reasonable size, with a good risk profile, there is no reason why it shouldn’t get a good deal in the market. What it won’t have though is the extra buying power that we have to drive the price even lower.

We are expecting a satisfactory renewal for our members again this year, with better than average premium rates and consistency of underwriting and less volatility to market trends. For our firms, renewal season is not quite as daunting as it might be for those outside our scheme.

For other firms, protection from spiralling PII costs has to start from within and a commitment to reducing claims through robust risk management programmes is the best place to start.

This month’s LawNet guest blogger is Robert Mowbray of Taylor Mowbray LLP, one of the most widely known trainers of professionals, having worked in and with legal, accounting and other professional organisations for over 25 years.

He is renowned as a trainer in things “financial” and has considerable experience of helping professional firms to increase profitability through more efficient and effective working practices.

In this article, Robert addresses the growing concerns for small to medium law firms in the light of the impending PII renewal season.

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Managing risk and PI premiums

All law firms in England & Wales are currently required to obtain professional indemnity insurance with a common renewal date of 1st October. This causes a scramble every September with approximately 10,000 firms all looking to secure the minimum cover required by the SRA.

A growing problem

With only a finite number of insurers in the market there is fierce competition to obtain a reasonable quote, with some insurers not releasing their quotes until the second half of September. The firms with the best claims records will never have a problem finding the insurance at a reasonable price, but for most firms it is bought at the eleventh hour with little choice available.

Some market commentators are already predicting that premiums will be up by at least 10% this year, as insurers continue to look to cover the claims that have been paid out in recent years and the growing problems that need to be covered by all insurers in the Assigned Risks Pool (ARP). There were nearly 300 firms in the ARP in 2010/11 with the annual cost of claims currently standing at £50M according to latest reports. This affects everyone, as the insurers have to cover losses in the ARP even though they may not collect the premiums being quoted to firms in the ARP.

Taking control of the situation

Premiums paid will be set by the market and are therefore linked to the overall claims experience of the solicitors' market and the firm itself, but there will always be scope for individual firms to manage their risks better and benefit from lower premiums and reduced management time spent on claims.

All firms should think again about whether they are doing everything that they can to manage professional risks. There are a number of things which can be done. A good first step for many firms is to gain accreditation for one of the recognised quality standards such as ISO 9001 or Lexcel. These standards are recognised by many of the insurers and help firms to look at the procedures which they have adopted which are designed to manage risks.

The key procedures in most firms cover the way in which:

• New clients are taken on or rejected as the case may be; firms should ask hard questions before accepting every client who walks through their door. The wrong choice of client can become problematic and costly if the correct questions are overlooked at the outset.
• New matters are taken on and engagement letters agreed; it is interesting to see how many engagement letters do not clearly scope the nature of the work being undertaken, provide a clear estimate of the likely costs or provide clarity on how money on account will be dealt with and interim bills will be raised. It goes without saying that if there is a clear engagement at the outset then there is less chance of problems arising later.
• Clients are updated as matters progress so that there are very few nasty shocks and surprises. Some fee earners are better than others at keeping clients informed on progress and so departmental heads normally need additional information if they are to ensure other fee earners are performing their roles properly.
• Files and fee earners are proactively supervised to ensure that there are no problems brewing. Management need to ask fee earners to disclose any problems early and not to wait until the end of the policy year before making enquiries.

Relationship with insurers

Many firms claim to have good procedures but it is interesting to hear the insurers say that most claims are notified in the last two weeks of the policy year which suggests otherwise. Insurers are more likely to trust firms who can demonstrate that they have adopted sound procedures and who notify possible claims promptly and throughout the year.

It is always possible to improve procedures with some clear leadership of the issue.

Taylor Mowbray LLP was established in 2009 to provide financial management and business training for solicitors and accountants. It aims to help firms to provide knowledge for and develop skills in people that will assist with growth and increasing profitability.