How to approach professional indemnity insurance in 2020

Joanna Kingston-Davies, group chief operating officer at MAPD (acquired Jackson Lees Group), on the current professional indemnity insurance (PII) challenges SME law firms are facing amid the pandemic

In my last blog, I talked about the opportunities and silver linings that lockdown has brought. It’s so important to stay optimistic but I’m also really conscious that many firms are struggling right now with the challenges thrown up by professional indemnity insurance (PII) renewal. Top up layers became significantly more expensive last year, and if that wasn’t enough, we’re now hearing horror stories left, right and centre around primary layer premium cost hikes this October, too.

Insurers are understandably nervous around the prospect of impending recession and the likely impact on potential claims, particularly in the property sphere. That’s of little comfort to law firms, though, which have decent claims records but whose plans are likely to be heavily restrained by having to plough an unexpectedly high level of funds into their insurance premium.

For many law firms, the PII timing couldn’t be worse, especially when deferred VAT payments are looming and just as furloughed staff are being re-introduced back into the business. The ability to fund premiums from cashflow will likely be the key challenge that many face.

Are you in this boat?

If so:

• Tempting as it is, try not to bury your head – get talking to people. Talk to your bank, talk to your underwriters and talk to your people about how best to manage the situation. It’s amazing what solutions people can think of when they’re one step removed and get their creative heads together!
• The banks may not be in a position to help but there are a number of alternative funding options available in the market to consider. If that’s not an option for the PII premium specifically, do you have other expenditure that can be funded differently? Do you have any IT, premises or other recurring spends that can be funded in an alternative manner? Can you talk to any of your suppliers about funding arrangements?
• Talk to brokers about what the key triggers are that affect your premium (above and beyond the global rate increase). Do you have particular claims that are carrying a high reserve that might be causing you a challenge? If so, do they relate to particular individuals or work types? Can you see any trends? What is the balance and make up of your work portfolio by work type? While you might not be able to change anything to have a material impact on your premium this year, it could really pay dividends next year to be able to demonstrate that any previous challenges have been proactively handled, or even removed.
• Think big and alternative – remember that sometimes you can grow your way out of trouble. One of the key potential benefits we are seeing from scaling up and acquiring law firms within the MAPD portfolio is the spread of work – and therefore risk – across the Group. While being acquired and becoming part of something bigger wasn’t necessarily on your radar, it could be a perfect solution that takes some of these headaches away and helps to propel you into the next chapter of your journey!