PII industry moves to calm small firm fears

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Practice insurance: “plenty of capacity” in PII market

Key figures in the professional indemnity insurance (PII) industry have reassured sole practitioners and small practices that a wide choice of reliable cover is still available to them, after XL Insurance confirmed it would no longer insure 1-3 partner firms.

Meanwhile, the Law Society has highlighted its concern about what it says is the practice of some brokers to require firms to sign so-called ‘chicken’ indemnity letters before facilitating cover from unrated insurers.

XL’s decision to pull away from the smallest firms sent shockwaves through the industry, just weeks before the 2013/14 renewal deadline. The insurer had 16.4% of the PII premium share last year, worth just under £40m.

There are also indications that AIG (formerly Chartis), whose share was half that of XL in 2012, will no longer insure firms with a heavy conveyancing caseload. The company has declined to confirm the change.

The Law Society’s latest guide to PII insurers, published this month, shows at least 11 rated insurers are currently declaring willingness to provide cover to 1-3 partner firms and four unrated. Just one of the rated insurers, Travelers Insurance, specified no restrictions on the type of firm or work done. Of the four unrated insurers, three stipulated no restrictions.

Of the 11 rated insurers, just one, WR Berkley, specified it would provide limited conveyancing cover. The remainder would insure on a case by case basis. The 11 include QBE Insurance (Europe), brokered by Aon.

For firms with 4-10 partners the picture is healthier, with 14 rated insurers – including XL – three without restriction and three unrated. Firms with more than 11 partners have a choice of at least 15 rated insurers, half of which placed no restrictions.

Elliott Vigar, the Law Society’s head of regulation, told Legal Futures he was concerned about the “cost and quality” of some brokers’ advice and warned small firms considering applying for PII from an unrated insurer that they could be required to sign so-called ‘chicken’ letters which indemnify the broker.

He said: “Even where brokers acknowledge the risk of a particular unrated insurer, some will provide clients with ‘chicken letters’ which we feel amounts to an abdication of responsibility to properly advise on the realities of the market and options available.”

Colin Taylor, head of risk management at specialist solicitors’ PII broker Prime Professions, which has represented the Sole Practitioners Group since 2000, said: “This is clearly a difficult time for many smaller firms… Prime has access to many insurers including exclusive access to two ‘A’ rated insurers for sole practitioners. We also have exclusive access to ‘A’ rated insurers for firms with 1-10 partners.”

Kavan Polson, a PII underwriter at unrated Elite Insurance, said solicitors should not panic and that there was “a vast amount” of market capacity “still able to offer competitive renewal quotes”. He insisted that “unrated insurers are not as bad as people perceive them to be. Unrated markets still strive to achieve underwriting profit”.

Mr Polson stressed that it was the duty of brokers to “inform and educate their client of the perceived risks associated with unrated insurers. The broker therefore needs to be satisfied with the financial strength of the insurers they seek to place business with”.

A spokeswoman for XL Insurance said: “We continue to review our overall PI book of solicitors and are working on pricing and underwriting guidelines to profitably write this class of business over the long term.

“Unfortunately, current market conditions are not allowing adequate pricing in certain areas of the solicitors class.  As such, we are significantly reducing our market share for the upcoming renewal season.”