SRA proposal to amend the minimum terms

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The announcement by the SRA of changes to the Minimum Terms could not be more ill-timed. There should be no suggestion of adopting these revised terms at renewal in September 2014. Firms must take care to discuss the position with their advisers. Participants in the insurance market cannot assess the proposed terms and resolve their positions in time to introduce the changes at renewal this year. At best there will be some sort of knee jerk reaction and a last minute fight by smaller practices to obtain cover late in the day – again!

The outcome envisaged by the SRA will not materialise. The proposed limit of indemnity of £500,000 for smaller practices is where the majority of claims activity takes place. Therefore, there would be no reduction in claims activity, and no reduction in premium, but there would be many firms left exposed with too low a limit, which could adversely affect the financial stability of firms and their owners.

The cost of topping up the limit from a starting point of £500,000 as opposed to the current £2m will be significantly more expensive.

There is talk of major lenders demanding higher limits, failing which they will exclude small firms from their panels, along with firms’ bankers looking for more security, particularly if the £500,000 limit is in the annual aggregate rather than being available on an each and every claim basis.

The way to reduce premiums is to reduce the scope of the cover not the limit of indemnity, by allowing insurers to reject claims or policies where fraud or deception is involved. It is about time the SRA took this aspect more seriously, which they now appear to be doing, albeit many years too late.

An article we’ve prepared on the matter, which appears in the June issue of Manchester Law Society’s ‘The Messenger’, is available to download and read here.

Disclaimer: MFL is happy for articles to be used in reputable publications, websites and companies in a public domain. Third parties that haven’t directly received this article in the form of an electronic press release must receive express permission from MFL, the sole owners of all of this website’s marketing and PR content.

To receive permission or to make further enquiries, call or email MFL’s Marketing team.

Martin Jackson

Tel: 0161 237 7728

E-mail: martinj@m-f-l.co.uk

Karolyn Judge

Tel: 0161 237 7734

E-mail: karolynj@m-f-l.co.uk

The New Lifeblood Of The Profession

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Kevin McParland, Managing Director of MFL Professional, details the insurers’ take on new business start ups and how NBUs can secure PI insurance cover for their practice.

The landscape of the legal profession is changing and doing do quite rapidly but how the land will lie after these earthquakes, eruptions and avalanches is uncertain. The more predictable areas of legal continental drift include…

To read on, download the PDF version of the article here.

Disclaimer: MFL is happy for articles to be used in reputable publications, websites and companies in a public domain. Third parties that haven’t directly received this article in the form of an electronic press release must receive express permission from MFL, the sole owners of all of this website’s marketing and PR content.

To receive permission or to make further enquiries, call or email MFL’s Marketing and Development team.

Martin Jackson

Tel: 0161 237 7728

E-mail: martinj@m-f-l.co.uk

Karolyn Judge

Tel: 0161 237 7734

E-mail: karolynj@m-f-l.co.uk

Professional Indemnity Insurance: What Does The Profession Want?

 

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Numerous articles have been written about solicitors’ professional indemnity insurance, dealing with specific events, actions by the Solicitors Regulatory Authority (SRA) or pre- and post-renewal traumas. Yours truly has written many articles commenting upon relevant issues as they arise.

I recently chaired a Question Time-style event entitled ‘Have Your Say’, which was a joint initiative of MFL Professional and Manchester Law Society. Click here to read the full transcript of the various questions raised and answers given. The panel included senior insurance management figures, Jenny Screech from Zurich and Mark Carver of Aviva, in charge of solicitors’ PII at these 2 market leaders. Other panel members were Steve Carter from Baker Tilly and Brian Rogers of Lewis Hymanson Small LLP. Brian had the unenviable task of plugging the gap left by the SRA, which declined our invitation to attend. Those who know Brian will be familiar with his regulatory expertise.

It didn’t take very long for it to become obvious that the SRA is held in low esteem by all stakeholders, i.e. insurers, law firms and Law Society members. While no profession would willingly invite their regulator round for dinner, there is tolerance borne out of recognition that regulators undertake a difficult task, often in trying circumstances. Can I really be so generous towards regulators? They don’t tend to cover themselves in glory in discharging their duties: our own regulator, the Financial Services Authority (FSA), was a major contributor in creating the economic meltdown of 2008. Leaving aside the FSA’s strategic errors that had such tragic consequences, the FSA is resented by many members of the insurance broker profession for deploying the proverbial sledgehammer to crack a nut and trying to fix what is not actually broken. Is the SRA any different? Apparently not.

I was taken aback by the depth of concerns shown by both the profession and insurers alike in our Question Time session. In a general sense it was felt the SRA simply has too much going on at the moment and is in danger of dealing inadequately with the issues on its crowded agenda. In seven short years of regulation by the FSA, we insurance brokers have been subject to three successive regulatory regimes. First there was Prescriptive Regulation, followed shortly by Principles-Based Regulation, and currently we are experiencing Outcomes Focused Regulation (OFR).

A person of a cynical bent might think these changes and the additional resources they require are just a thinly-disguised job creation scheme. As an insurance broker with several decades experience dealing with annually renewable contracts, I can say without fear of contradiction that if our clients do not enjoy their desired ‘outcome’,they go elsewhere. It doesn’t need a regulator to ensure there are appropriate ‘outcomes’ to what we do. May I now take this opportunity to welcome the legal profession to the world of OFR and I wish you luck in complying.

Some excellent questions were asked by those wanting to Have Their Say and in so far as it was possible, I believe the panel provided clear and honest answers. The message that came across with regard to the 2011 professional indemnity insurance renewal was the majority of insurers are now content with the business they have written and with current rates of premium but not with the extent of losses emanating from the Assigned Risk Pool (ARP) in which they are obliged to participate by the regulator.

Law firms enjoying the protection of the ARP, all of which the insurance market had deemed to be uninsurable, are costing insurers something in the region of 20% of the premiums that they have collected from the other firms. The SRA, and the Law Society before it, have evolved a solid gold insurance product designed to provide the ultimate in customer protection; but it brings with it commensurate gold-priced insurance premiums. However, the insurance market has provided the cover and paid the resultant claims (except for Quinn Insurance. Take a look at the downloadable insert for full details).

They have put their money where their mouth is and kept their part of the bargain. On the other hand, the SRA have not kept their part of the bargain. What exactly was their part of the bargain? Put simply, it was to regulate the profession properly. You would think that would not be too much to ask. But, if they have properly regulated the profession, how can it be that the 150 firms in the ARP in 2008 were allowed to continue in practice and to run up claims in the region of £50m? And similarly in 2009 and again in 2010?

The SRA has finally announced remedial measures but the pace of change is painfully slow. The changes are to be phased in during 2011, 2012 and 2013, the objective being an end to the ARP in 2013. Despite the unsustainable nature of the current state of affairs, there doesn’t appear to be any willingness by the SRA or the Law Society to dilute the insurance cover provided, as it would be regarded as a reduction in customer protection. Claims will still arise and will have to be paid, in circumstances where it wouldn’t be the case with other professions. The difference will be the effective subsidy currently being provided to the profession by the insurers, via the ARP, will be removed and that cost will have to be borne by the profession. Unless, that is, the SRA does its job and intervenes in firms which should be closed down, much earlier than at present. A small number of firms are costing the profession dear in both financial and reputational terms.

I have entitled this article ‘What Does The Profession Want?’ Following our lengthy Question Time session I think I have an understanding of what it needs, which may or may not be the same thing. I believe there has to be a fundamental change by the profession in its attitude to Professional Indemnity insurance. Rather than treating insurance as a commodity, firms need to view insurance as an ongoing service, involving a partnership with their insurers and brokers. I have covered this in previous articles: purchasing insurance is not the same as buying baked beans or paper for the photocopier.

This needs to run alongside doing whatever can be done to reduce the cost of claims, which of course will directly assist in reducing insurance premiums. Firms can order their own affairs with that objective by practising risk management, which I have covered in depth in previous articles. But something must also be done to reduce the costs over which the good firms have no direct control, i.e. the claims incurred by the bad firms. The SRA have committed themselves to closing down all practices languishing in the ARP for 6 months or more after the 1st October 2011. The profession simply has to ensure this doesn’t happen.

Your trade body leader Des Hudson believes that all will be well if more insurers enter the market, is not necessarily the case. His efforts would more productively be directed towards placing the SRA under greater pressure to intervene where necessary, using the funds already donated by the Law Society to help facilitate effective intervention. Reduced claims mean reduced premiums. ‘Simples’ as the meercat says.

There is, however, a new entrant to the market this year and MFL Professional is one of a very small number of brokers chosen to distribute to a limited amount of practices on its behalf at 2011 renewal. Contact us now as there is limited availability.

Kevin J McParland, Managing Director, MFL Professional

Contact the MFL Professional team now for your 2011/2012 requirements: 0161 236 2532

MFL Professional is a trading name of McParland Finn Ltd.
Registered office Barlow House, Minshull Street, Manchester M1 3DZ.

Registered in England No. 2817700.
McParland Finn Ltd is authorised and regulated by the Financial Services Authority.

Disclaimer: MFL is happy for articles to be used in reputable publications, websites and companies in a public domain. Third parties that haven’t directly received this article in the form of an electronic press release must receive express permission from MFL, the sole owners of all of this website’s marketing and PR content.

To receive permission or to make further enquiries, call or email MFL’s Marketing and Development team.

Martin Jackson

Tel: 0161 237 7728

E-mail: martinj@m-f-l.co.uk

Karolyn Judge

Tel: 0161 237 7734

E-mail: karolynj@m-f-l.co.uk

Is Customer Protection The Holy Grail? Is The SRA Playing Russian Roulette?!

I was fortunate to be asked to attend the Law Society Question Time on the 12th May at the Renaissance Hotel here in Manchester.  Presentations on the range of issues concerning the Legal Profession were made by Des Hudson and Linda Lee, the national president.

Within the range of topics discussed was of course Professional Indemnity Insurance.  It was extremely interesting to listen to the views expressed by Des Hudson on the stance of the Law Society and the impression that was being given.

Having promised Fran Eccles-Bech to be on my best behaviour, I did not take up any issues with either Des or Linda in the formal part of the evening but I must say I was most concerned with what I would call the selective issues and views expressed.  Unfortunately, my good behaviour did not extend to me remembering to turn off my mobile which was in my brief case and as I was sitting in the front row, my fumbling around to find the off switch led to Des Hudson commenting, “Another person who does not know how top operate a mobile”.  I stand guilty as charged and offer my profound apologies!

After the meeting, over a glass of wine, once the conversation had run out of steam on the weekend’s key football matches, (I was surprised the first leg play-off between HUDDERSFIELD and Bournemouth did not figure a little higher on the agenda… however), discussion began to address Professional Indemnity Insurance.

It became very clear to me there were very firm views held on the issue of Customer Protection, any dilution of which was the equivalent of the first step on the path to Ruin and Damnation.  In effect, Customer Protection is the Holy Grail, these views being strongly held by the Law Society both locally and nationally.

It was at this point I had to admit I was not from the profession and further, that my view of the Holy Grail was that it was OK but who should pay for it!  It was at this point that your President, Linda Lee accused me of being from the dark side.  I know Huddersfield is on the other side of the Pennines, but…

Here lies the problem, and it is a difficult one: how to reconcile the extent of Customer Protection, ie the Minimum Terms and Conditions, with the outrageous cost to fund.

Not once did the earlier presentation make mention that the cause of the problem was due to some Law Society members being negligent, being fraudsters or being thieves of client monies.  It is amazing how it was seen as an insurer problem and the way to tackle it being the introduction of new entrants to the market.

Whilst I believe the Minimum Terms and Conditions go too far to protect the customer much further than any other profession, I do not argue that the profession is within its rights to raise this bar to whatever level is felt appropriate.

It’s the who is expected to pay for this and how, that causes me and the insurance market a problem.  It is the desire of any insurance buyer or risk manager to have an insurance market of continuity and stability in both terms of availability of cover and pricing levels.  The current market is not providing those key essentials.

The legal profession will have to accept that it will have to bear more of the cost to maintain this Holy Grail of Customer Protection in the future.  Extensive pressure needs to be exerted on to the SRA for them to bring what is a relatively small number of “Rotten Apples” to book!

The SRA published the results of the consultation process and pronounced on their intended course of action.

In the insurance year 2011-2012, the maximum length of time firms can reside in the Assigned Risk Pool (ARP) has been reduced to 6 months.

In the year 2012-2013, the (ARP) will be partly funded by the Legal Profession via the Compensation Fund.  I seem to recall Des Hudson mentioning a maximum figure of £30m pa.  Unfortunately, I was wrestling with my mobile at that precise moment!  Further changes to be made in 2013-2014.

The SRA has missed an opportunity to reduce the fears of the insurance market and thus encourage new entrants and for those insurers currently approved, to increase rather than continue to reduce their capacity.

As a consequence and in my opinion, any new insurer contemplating providing capacity to the solicitors’ market must have money to burn or be extremely foolish. 

‘Why?’, you may ask:

• The Minimum Terms and Conditions are too wide and provide no incentive to firms to practice good compliance and risk management;  In fact, firms consider that the purchase of PII cover is their risk management.
• The SRA has in general not got to grips with the problems and do not give the insurance market the confidence, at least in the short term, that they will.
• The change to the ARP rules made to become effective in 2011 will, in the short term make the problem worse for insurers.  It is not too much of a stretch to conclude that after 6 months in the ARP, most firms will have to close their doors and go into “run off” with the insurers picking up the risk for 6 years, probably without receiving payment of the premiums to which they are entitled.

The table below shows the top 10 insurers (as at March 2011) providing Minimum Terms cover to the legal profession.  Of the 6 mainstream markets in that top 10, it is doubtful that any will increase their capacity (ie Chartis, Zurich, Travelers, QBE, Aviva, RSA).  They will continue to cleanse their books and may possibly reduce capacity.

Of the remaining 4 markets, Allianz are being very specific and will remain pretty much the same.

Hanover Re and XL are new entrants, 2011 will be their second renewal.  They will of course have to defend larger books of business and may not therefore be as aggressive in 2011.  Also, and more importantly, the combination of no real change in the ARP and the fact that their losses will now be beginning to crystallise, may even result in them offering reduced capacity.  At the same point in time Quinn Insurance began to feel the strain and their loss in the UK is thought to be in the region of £497m.

Top 10 insurers (as of March 2011) providing Minimum Terms cover to the legal profession

By delaying any meaningful changes, the SRA are playing roulette with the profession’s reputation and finances.  They are gambling that by whatever means the insurers will continue to bail out the legal profession.  The big question is whether or not the market will continue, or pulls in its horns until its exposure to the ARP (ie the risks it has chosen not to underwrite) has been reduced.

Kevin J McParland

Managing Director

McParland Finn Ltd

Disclaimer: Because of its technical nature, this article must be reproduced in its entirety in order for its message to be fully understood.

MFL is happy for articles to be used in reputable publications, websites and companies in the public domain. Third parties that haven’t directly received this article in the form of an electronic press release must receive express permission from MFL, the sole owners of all of this website’s marketing and PR content.

To receive permission or to make further enquiries, call or email MFL’s Marketing and Development team.

Martin Jackson

Tel: 0161 237 7728

E-mail: martinj@m-f-l.co.uk

Karolyn Judge

Tel: 0161 237 7734

E-mail: karolynj@m-f-l.co.uk

Update: Solicitors’ Professional Indemnity Renewal 2011

We have pleasure in presenting to you our latest update on the Solicitors’ Professional Indemnity Insurance Market for our legal clients.

In this edition, we look at the results of the recent SRA consultation on the minimum terms for Solicitors’ PI Insurance and assess their likely impact on the market for 2011.

In conjunction with Manchester Law Society, we have also arranged a ‘Question Time’ event on this subject, involving leading figures from the PI insurance market and the SRA.

We would like to invite you and your colleagues to this topical debate; take a look at the details here.

We will of course be contacting you in the next few weeks to arrange our usual pre-renewal meeting.

SRA Changes

The recent changes agreed by the SRA can be summarised as follows. They mainly concern the operation of the Assigned Risks Pool (ARP), which is the emergency insurance of last resort for those practices who cannot obtain cover through the conventional PII market:

• From October 2011, the amount of time a firm can remain in the ARP will be reduced from 12 months to six. After that it must obtain conventional cover or close down.
• From October 2012, the ARP will be funded jointly by qualifying insurers and the profession, with liability for claims arising from firms that have not taken out insurance moving from the ARP to the compensation fund;
  The  ARP will be replaced in October 2013 by a system whereby insurers will offer a three-month extended policy period to firms that cannot obtain professional indemnity insurance for the following year;
• The single renewal date will be maintained until October 2013 to facilitate the transition to the new arrangements;
• Claims from financial institutions will not be excluded from the minimum terms and conditions of insurance for the time being, but this will be reviewed with the possibility of the change occuring in 2013.

Short term impact

Firstly, many PI insurers have taken the view that the changes to the minimum terms/ARP arrangements do not go far enough, early enough.  Insurers will still be exposed to their fair share of ARP claims in 2011, which by definition arise from the work of practices the market didn’t want to insure in the first place, as well as to claims arising from the automatic provision of six years’ ‘run-off’ cover, when practices come out of the ARP and are still unable to find cover in the market.

Furthermore, insurers struggle to collect the premiums for ARP cover and have currently no prospect of collecting any further premium for the six year ‘run-off’ exposure. As a consequence, many insurers who pulled out of the solicitors’ PII market because of the ARP rules are currently reluctant to dip their toes back in and other insurers, who may have decided to come into the market for the first time, have decided not to do so until the ARP is reformed further.

However, there is some speculation in the market that some new insurers may enter the fray this year, attracted by the recent increases in premium rates.

Whether or not this comes to pass remains to be seen, but we will be keeping a close eye on the situation.

A conservative approach

We therefore anticipate the same conservative approach from the mainstream markets this year. Additionally, we also feel that one or two of the newer opportunistic markets that were very competitive in 2010 will take a more cautious approach.

We should start to gain a clearer picture of how the market is likely to respond in the coming weeks but the overriding message, as in previous years, is to start the process early and to make every effort to positively differentiate your business from your peers.

Mark Philmore, ACII, Chartered Insurance Broker

Director, MFL

Direct dial: 0113 366 2359

Switchboard: 0113 366 2274

Fax: 0870 855 6441

Email: markp@m-f-l.co.uk

Website: www.m-f-l.co.uk

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Disclaimer: Because of its technical nature, this article must be reproduced in its entirety in order for its message to be fully understood.

MFL is happy for articles to be used in reputable publications, websites and companies in the public domain. Third parties that haven’t directly received this article in the form of an electronic press release must receive express permission from MFL, the sole owners of all of this website’s marketing and PR content.

To receive permission or to make further enquiries, call or email MFL’s Marketing and Development team.

Martin Jackson

Tel: 0161 237 7728

E-mail: martinj@m-f-l.co.uk

Karolyn Judge

Tel: 0161 237 7734

E-mail: karolynj@m-f-l.co.uk