It is fair to describe the current solicitors’ professional indemnity insurance (PII) market as buoyant. Appetites have changed resulting in significant competition amongst insurers providing brokers with the ability to maximise the effectiveness of the resulting competitive tension to obtain the most favourable terms for the medium to the larger sized law firm clients.
You no doubt will have read similar “market updates” or “state of the market” commentary before, with fluctuating market cycles from soft through to hard market peaks transitioning to a softer PII environment. However, it is useful to reflect and perhaps appreciate how much the market has evolved over the last twenty years.
Solicitors PII moved to the open market following the dissolution of the Solicitors Indemnity Fund in 2000. This may seem like a very long time ago but in insurance terms, this makes the solicitors PII market practically embryonic! During the last 24 years, we have seen the effectiveness of the solicitors’ market and underwriters evolve immeasurably, and whilst still subject to wider macro-economic and market-specific cycles, has now reached a level of maturity to the benefit both.
The 2008 financial crisis which witnessed a downturn in the property market and recession brought about the first hard market and was exacerbated by a number of un-regulated insurers exiting the market. The following 18 months or so saw a return to more favourable conditions but there was a huge shift in mindset from an underwriting perspective moving from transaction size and practice area to wanting to understand an insured’s claim profile and how they are managing risk. There has also been a change in the way in which law firms view the PII market as well.
There is a mutual desire between law firms and insurers to establish a meaningful long-term relationship and to be partners in the transference of risk. Both sides have continued to embrace the importance not least the value of culture within a law firm.
Eighteen months after the latest hard market and the challenges of Covid, the market has evolved significantly. Unlike the post-downturn period, where law firms frequently switched insurers to save on premiums, today’s market is far more stable and mature.
In contrast, during the most recent 1st October renewal cycle, whilst there was some fierce competition and some very aggressive pricing from a number of insurers, we did not see the same degree of movement between insurers. Of course, premium will remain a primary focus, and we saw both rate and premium reductions across our portfolio. It is clear that the past has shaped the views of stakeholders on both sides and has influenced the decisions made today. There is a much greater recognition from our law firm clients and insurers that the lowest premium does not necessarily represent the best value.
Law firms are placing much greater value on an insurer’s claims proposition than ever before. Most firms by now have experienced at least two or three different insurers and are able to reflect and compare how complex or large claims have been handled. They value the working relationships they have with their insurers and put a price on the quality of advice and service levels they receive.
Looking ahead, the legal profession will continue to face risks with new emerging risks arising from global risks such as climate change and geopolitical tensions, advancements in technology and artificial intelligence (AI) but also risks concerning people such as employee well-being, workplace culture and supervision.
Insurers will expect law firms to be able to articulate how AI is being implemented, whether appropriate policies have been put in place, if training has been provided, what the impact on clients is, and how it is being supervised and monitored for accuracy?
Employee well-being will continue to be a focus from a risk management perspective, especially in a hybrid working environment. Are systems in place to understand, identify and manage work-related stress, including burnout before it happens?
The importance of culture is now a prominent feature of the PII renewal process. Sometimes we are asked “what is it that insurers wish to understand about our culture?” This is a really good question because the concept of a law firm’s culture is one that has evolved more than probably any other aspect, to such an extent that it has morphed into something that can now be categorised as simply "everything". It is a positive attitude to risk; it’s the organisation’s core values; the message from the top; it’s how people talk to each other; it is the manner in which a new client or employee is onboarded, it is staff training; it is the physical office environment. It is everything. It is less common now for insurers to ask law firms to describe their culture as all-encompassing but if they do, a response of “we operate an open-door policy” will certainly no longer be enough.
To summarise, the market has reached a level of maturity that we believe will result in greater consistency from incumbent insurers. The welcome competitive tension shows no sign of abating. In conjunction with a more considered approach from law firms valuing longevity of the relationship with their insurer, whilst market cycles will always exist, we envisage the peaks and troughs of hard to soft market conditions to be less pronounced in the future.
