Solicitors’ professional indemnity insurance market under increasing pressure
It is becoming increasingly difficult for insurance companies to operate in the solicitors’ professional indemnity insurance (PII) market. Datamonitor research indicates that the level of claims will remain high for up to two years, pushing margins to the brink. Research* by the independent market analyst has revealed that the level of claims against solicitors will increase, particularly those that relate to sub-prime and prime lending.
This is one of the factors behind the rise in the number of solicitors unable to get PII by conventional means and ending up in the assigned risk pool (ARP). Donna Stevens, analyst at Datamonitor, said: “It is compulsory for solicitor firms to have PII, and the ARP is there for those who can’t get cover through the normal channels due to a number of reasons including a poor claims record or a major claim outstanding but not yet decided. “The responsibility for ARP cover falls to insurers operating in the market which each have to do a proportion of this sort of underwriting. The amount of which depends on their share of the market. The increase in the number of solicitors in the ARP means that insurers are forced to underwrite more companies which have a high risk of a claim being made against them; leading to higher costs.”
Datamonitor has found that the market believes the cost of the ARP to underwriters is about 20% of their total gross written premium, severely affecting their ability to operate in the market. Since October 2010, the time limit for solicitors to be in the ARP has been reduced from 24 months down to 12. Nevertheless, there has still been an increase, further increasing the cost to underwriters. Donna continues: “There is a danger that some of the main players may exit the solicitors’ PII market.
The Solicitors Regulation Authority (SRA) has the chance to make some major changes when it reviews the market this year. Should it recommend that the market be funded by members of the SRA, the market will once again become attractive to insurers and competition will increase; bringing down premiums. Without this move, we can expect to see insurers exiting the market and premiums rising. This is particularly pertinent as the overall professional indemnity market is predicted to return to growth from 2012, and there will thus be more attractive markets in which the main players can operate.”
2 March 2011 Published by Datamonitor