Rowson: Greater competition for business
The cost of professional indemnity insurance for many law firms fell last year, and there are positive signs for renewal in 2025 too, a leading broker has declared.
However, Lockton identified financial mis-selling work as “perhaps the most significant emerging risk to insurers” last year, continuing into this.
Lockton has 1,700 law firms on its books and its analysis showed that the cost of the primary layer of insurance as a percentage of their revenue fell from 4.6% in 2023 to 4.25% last year – a drop of 7.5%.
The cost of the excess layer to £10m went down from 0.87% of revenue to 0.83%, or 5% less.
Lockton partner Marc Rowson listed three reasons for this: a “renewed appetite for growth” from established insurers, a new entrant to the market, coupled with those that entered in 2023; and “a stable claims environment”.
On the latter, he said, while the trend was for claims against law firms to be bigger, there were no new types of claim that upset the market in previous years, such as buyer-funded developments, right to buy, cyber crime, or escalating ground rents.
But there were still “pockets of the profession” that insurers remain reluctant to insure, namely firms with fees below £500,000 and a high proportion of commercial and/or residential property exposure, firms whose owners are at, or nearing, retirement age and have no succession plans in place, and those conducting financial mis-selling work.
Mr Rowson said 2024 saw “a number of high-profile collapses of firms” involved in financial mis-selling, and “in the case of some firms, the aftermath resulting in discussion and activity in Westminster”. This is an oblique reference to the failure of SSB Law.
“Insurers are cautious of such work, primarily due to the funding structures that are in place and the risk that this presents,” he explained.
But more broadly, there was “reason for continued optimism across 2025, primarily as a result of new entrants, and the majority of established insurers having an increased appetite and premium targets to meet”.
There was also likely to be further new capacity entering the market this year, with some firms able to benefit from “greater competition” for their business.
At the same time, there were concerns among established insurers beyond financial mis-selling, including the “rising severity” of theft from client accounts and the increase in vendor fraud in conveyancing.
Mr Rowson said insurers were “embracing” the role of artificial intelligence (AI) in law firms but wanted reassurance that it was being properly controlled by their leaders.
There were two main concerns – first, firms not having a clear policy for AI usage, leading to some staff using it without management knowing, and second, firms not sufficiently scrutinising the content generated by AI.
Mr Rowson added that insurers continued to be concerned by the courts’ interpretation of the extent to which they could aggregate similar claims, most recently in the Discovery Land v Axis case.
The minimum terms and conditions of insurance, as set by the Solicitors Regulation Authority, meant insurers “have no protection from the worst possible loss scenario”, he said.
“Their liabilities are not capped at the total limit, and in claims scenarios where the aggregation principle is being interpreted as it is currently, these claims can be extremely costly and result in a primary insurer paying out tens of millions of pounds.”
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