The bottom line: focusing on financials in your PII proposal 

Calum MacLean, risk manager at Miller Insurance Services, outlines why it’s crucial for firms to offer a clear and compelling picture of their financial strength to their professional indemnity insurers

When it comes to completing your professional indemnity insurance (PII) proposal form, financial details are paramount.

While the information requested may not always align neatly with the data that comes out of your accounts package or practice management software, it’s crucial to take the time to ensure accuracy. This is your opportunity to present a clear, compelling picture of your financial strength and stability to insurers.

Why financial stability matters to insurers

Insurers have a very real concern about the financial stability of law firms, particularly when it comes to covering the cost of compulsory run-off cover. This cover provides six years of protection against professional indemnity claims after a firm ceases trading, and insurers are obligated to provide this even if the firm cannot pay the premium. Assurance that a firm can meet its financial obligations is therefore high on insurers’ agendas.

The Law Society’s latest report on law firm profitability continues to indicate a reliance on client account interest driving profit margins, with underlying performance issues remaining. Miller’s own 2025 risk benchmarking report suggests that small firms are particularly concerned about financial risks.

Given these metrics, and the number of high profile large-firm failures in recent years, insurers are looking for positive indicators of sustainable growth, profit margins and cashflow, and alert to contrary risk indicators.

Key metrics insurers use to evaluate financial resilience

1. Fee income fluctuations

Insurers will carefully scrutinise fluctuations in your fee income, whether it’s rising significantly or declining materially over time.

Sudden increases in fee income can signal a level of growth that is not supported by adequate supervision, systems or procedures. It may also indicate high-risk work streams or changes in the way work is accepted. Legitimate reasons exist, of course — such as the temporary surge in property transactions due to changes in stamp duty thresholds from April; or the stamp duty ‘holiday’ during the Covid-19 lockdown, which led to a hot property market and firms raising their rates to manage demand and reflect the true cost of work. Providing context is key to prevent assumptions potentially being made.

On the other hand, a marked decrease in fee income may not necessarily alarm insurers, especially if it is tied to deliberate changes in your firm’s operations, such as ceasing a particular work type and reducing staff accordingly.

Temporary reductions, such as those caused by major system outages (e.g., ransomware attacks), can also be mitigated in the eyes of insurers if you can demonstrate how the issue was contained, addressed and how the firm has recovered. Transparency is key here. Evidence that the incident hasn’t exposed the firm — or its insurer — to a wave of PII claims will go a long way.

If your fee income is decreasing year-on-year as part of a planned business wind-down, you’ll need to provide a clear succession plan. Whether you intend to sell the business, wind it up, or pursue another strategy, insurers will want to know that you can afford the run-off premium — which can be up to 350% of your usual annual premium, depending on the insurer.

2. Operating costs, drawings and net profit

Fee income is only one piece of the puzzle. Cashflow is king and underwriters will look at the values and trends in costs, partner/member drawings, and net profit to assess your financial stability.

If operating costs have risen significantly due to investments in systems or IT upgrades, make that clear in your submission and highlight the long-term benefits of these expenditures. Insurers are far more likely to respond positively to firms investing in their future with a clear strategy rather than those focused solely on maximising income extraction.

With that in mind, unusually high partner drawings — perhaps due to a partner leaving and withdrawing their capital — should also be explained. If the impact on the firm’s net worth is stark, address the issue head-on. A clear strategy for resolving financial pressures is likely to win the support of your insurer.

3. Lockup and debt

With cashflow again at the centre of focus, insurers are just as interested as you in ensuring your business not only generates fees in theory, but that these translate into actual cash for the business. Certain work types, such as those involving public agencies that pay on completion, can be viewed as lower-risk income streams. However, it’s important to explain your fee collection process clearly in your proposal form. If asked why only a certain percentage of fees incurred have been paid, provide a thorough explanation.

When reporting overdue fees, be transparent about your payment terms. If your terms are unusually short, make this clear. Insurers are primarily concerned with bad debt and fees that may ultimately be written off. If you’re confident that overdue invoices will be paid, provide meaningful evidence to support your position.

Your proposal form will often ask about your overdraft facility and current actual overdraft. This is a common area for errors, with firms sometimes confusing the facility limit with the actual overdraft amount. If you have an overdraft or other significant debt, explain the context and outline your repayment strategy.

Consider your strategy

Insurers favour firms that demonstrate stable, sustainable growth underpinned by robust systems and a strong organisational culture. While growth is often seen as a positive indicator, overly aggressive expansion (particularly through acquisition) can raise red flags.

High-profile failures such as Axiom Ince and similar cases have made insurers wary of firms pursuing rapid growth without sufficient safeguards. If your firm is embarking on ambitious growth plans, it is vital to justify your strategy and provide detailed evidence of how this growth will be managed and de-risked — both in terms of potential claims exposure and financial resilience.

Overall, while completing your proposal form may seem like a tedious bureaucratic task, it is the first document insurers review, and the primary basis upon which underwriters assess and justify their rating decisions.

Your PII is one of the most significant investments your firm makes, so take the time to consider from an insurer’s perspective before submitting. Ensure your proposal form is accurate, comprehensive, and reflective of your firm’s strengths, and share it with your Miller team well in advance to allow for a thorough review. This proactive step can make all the difference in securing a smooth and successful renewal.