Time for a makeover? Seven steps to make your broker happy
Take a different approach when your proposal form arrives this year, recommends Chris Marston - treat is as you would a pitch for new work and you may get a better PII deal
Seven steps to make your broker happy - and get a better PII deal into the bargain
Most firms will expect to hear soon from their professional indemnity broker. A small percentage of firms took up the opportunity to change their renewal date, though curiously those early movers in October 2013 tended to take 18 month policies and will be back in the October-renewal club this year.
It's a hectic time for brokers and insurers, and to put it into context, imagine for a moment that all of your client work over the past year had to be squeezed into a four-month period. I'm guessing it might tend to make you economical with your time and intolerant of delays, mistakes and omissions.
Members of LawNet, the UK's biggest network of independent law firms, will soon be receiving their proposal forms, and we'll be inviting them to put their best foot forward for the 1 October renewal of our group scheme, the biggest group placing in the market, buying more than £1bn of cover.
I keep in regular contact with brokers during the year, listening to what is happening in the market, and asking them about their key priorities in the renewal process, so we can make sure our firms stay ahead of the game. Some of these would have featured in any list compiled over the past several years, while others reflect recent developments and trends. Either way, paying attention to these issues must surely produce a benefit for your firm.
Step 1: Don't delay
Busy professionals with a focus on their clients can be tempted to wait until they are chased, rather than actively prepare for their PII renewal. If left too late, this can lead to hurried proposals with scant or poorly-prepared supporting information. Put yourself in the shoes of brokers and underwriters, at their busiest time of year, and ask how you would respond to such a proposal. It is vital to engage with your broker at an early stage in the process and agree a working timetable of the information that is to be provided, by whom, by what method and when.
Step 2: Update your claims data
Claims summaries are key supporting documents for your PII renewal proposal and it’s vital that reserves and settlements are up to date and accurate to avoid terms being negotiated on incorrect figures. If you declare a high reserve which has gone away or been settled for less, you will either be paying too much for your insurance, or causing difficulties and delays in revising the terms when it does get picked up.
Step 3: Remember nil returns
Still on that all-important claims data, brokers tell me that alongside out-of-date information, plenty of firms don’t bother submitting summaries for no-claim years. It is unrealistic to expect brokers or insurers to 'know' that 2013 was a no-claim year for your firm, and missing documentation introduces delay and has the potential to convey a negative message about the way the firm prioritises and manages risk. Those no-claim years are something to shout about, not to forget about.
Step 4: Tell your story
Do more than just answering the questions on the proposal form. I know these are getting longer, but the way to make your proposal stand out in the crowd is to demonstrate how your firm is going the extra mile in its risk management. The LawNet group PII placing gives members the benefit of their collective buying power, whilst still paying a premium which reflects their own firm's risk profile, so we encourage them to bring a sense of the firm’s individual character, because if you’re working hard to improve risk management, your insurer should recognise your efforts.
Try to explain how and why certain risk management procedures have been introduced and are being implemented in your firm; don't leave it to the underwriters to make their own assumptions about this. If you have introduced specific training to guard against certain risks, describe that and find ways to illustrate the benefits. If you can highlight a case where a risk was averted directly as a result of your policies, your internal oversight arrangements or just the exceptional vigilance of your people, then bring attention to that.
Step 5: Do the maths!
This is such a basic issue, but you must check that the areas of practice percentage numbers actually add up to 100%. I couldn't believe this at first, but several brokers have confirmed to me that this is a common mistake, causing delays in obtaining quotations.
Step 6: Think Cyber and Think Fraud
Most insurers will incorporate additional questions into their proposal forms this year relating to cyber crime and associated fraud. Whether it's malware, phishing, vishing, or any other scam, the plain fact is that insurers have suffered sizeable losses over the past 18 months and they want to know how you are guarding against these risks in your firm. Client data - and client money - has been stolen from law firms and this year, more than ever before, firms will need to show what they are doing to mitigate against these risks. Have you provided training? Are you pursuing an accreditation such as Cyber Essentials Plus, or even ISO27001? We’ve been reviewing options for quality management systems to support our members and have identified Cyber Essentials Plus, with its external assessment, as being an excellent first stage. Have you commissioned any penetration testing by outside agencies, to test your defences?
If, like many firms, you have experienced an attempted fraud, which your internal processes have 'seen off', don't keep that to yourself. Tell the insurer how you thwarted it, how you used it as an example in your internal training. If you did actually suffer a loss, it is important that you explain how you have learned from the experience, changed your processes, introduced training initiatives or sought outside help.
Step 7: Treat it like a pitch
After staff and property costs, PII is the largest single expense for most law firms. What else do you spend between 3% or 4% of your fee income on? Completion of the proposal is the one chance you get each year to demonstrate to brokers and underwriters, in the frenzy of a busy renewal season, that your professional indemnity risk profile is attractive, that risks are well managed at your end, that you are alive to the changing risk landscape.
If you were working on a pitch for a piece of work that would land you a profit of even half your annual PII premium, you'd surely be highly focused on making sure your presentation was of the highest quality and accuracy. So why treat the PII proposal as an administrative chore? I have to say I was appalled when I was shown some real (though anonymised) PII proposals by a broker a few years ago, and I couldn't help thinking that if those firms' clients saw these, they'd never instruct them.
The entire submission, i.e. the proposal form, the requested supporting data, plus the additional supporting documents that you believe make your case more compelling, must be as neat and legible as possible, to avoid delays caused by brokers having to seek clarification.
Ultimately, your PII premium will reflect your claim history and the effectiveness of the risk management regime at work in your firm. Your work split will also be a major factor, and residential conveyancing remains the major claim area, followed by commercial property and wills & probate.
As you might expect, the insurers' teams of actuaries have developed sophisticated models to help them understand the cycle of maturity for claims both generally and by type, and they use this data for future financial planning and to help set premium prices. These models can help them to calculate, for example, that a claims-to-premium ratio of say 63% for 2013 at this stage of the cycle is likely to develop into 92% by year six, based on previous experience across work types, counter-claims, successful defences etc.
However, the fast-moving area of cyber-crime and fraud brings a new dimension to the way underwriters are assessing the risks they accept. Life is not so simple when a sizeable claim is paid out following the theft of client money by criminals in a vishing attack. The claim matures instantly, allowing the firm to make good the client account as required by the Accounts Rules. This is a new experience and is probably playing havoc with the established price modelling. It may be that only the passage of time will fix this, but meanwhile, at the very least, you need to show as clearly as you can how your firm guards against this risk.
So take a different approach when your PII proposal form arrives this year. Don't look upon it as a chore. Treat is as you would a pitch for new work. It may not be quite as exciting, but a positive approach could pay dividends.
This article was originally published in Solicitors Journal on the 21st June 2016 and can be viewed here.