Large firms face favourable solicitors’ PI market with abolition of ARP likely to further reduce rates

At a press briefing the broker was also keen to stress that the phased abolition of the Assigned Risk Pool (ARP) beginning next year is likely to lead to more capacity entering the market and a further reduction in rates, particularly for the largest firms and sole practitioners. As such, purchasing multiyear policies, in fear of the fallout from the pools’ closure, does not seem advisable. Marsh experts also said the trend towards consolidation amongst law firms is causing concern amongst insurers over risk management standards and the function’s ability to cope. In the small and medium (SME) -sized space they were critical of the rise of unrated insurance companies taking risks to the potential detriment of clients amid more challenging market conditions.hideThe renewal date for Solicitors’ PI insurance in England and Wales is October 1, and again it appears a good market for the larger firms. In this space the market remains soft, said Sandra Neilson-Moore, European practice leader for solicitors' PI at Marsh, with plenty of capacity for risks. There remains plenty of competition for cover, terms are still very broad and there is little difficulty when placing risks, she explained. However, there has been a ‘bit of a pinch’ towards the bottom end of the top 100 law firms and those just below this size, she pointed out. This is because there is not enough premium generated by these firms to support losses. “So we are starting to see pressure on rates there and the market wanting more money from those firms. And these firms are the ones least able to take increases, so from that point of view the market is a bit lopsided,” commented Ms Neilson-Moore. The market is not as soft for SME firms, said William Cooper, Head of England & Wales Solicitors' PI Practice at Marsh. While some can still obtain reductions, renewals are generally flat, he said. The experts said that phased abolition of the ARP next year will likely reduce the cost of like for like PI insurance. Mr Cooper said that the market will become more attractive to insurers as they will not have to fund the pool. This will create more competition for cover and likely lead to a reduction in pricing. “We envisage that companies that have reduced the number of firms they wrote over the last four years will come back into the market and create more competition and this will be good for the profession,” he said. Ms Neilson-Moore believes this will be particularly beneficial for the larger firms. For the giant firms there are currently only two or three primary carriers writing cover, she said, but once the ARP has gone at least two other large insurers have indicated to Marsh that they wish to enter the market. “We are happy about that because the more choice our clients have the better it is for them,” said Ms Neilson-Moore. “I think rates will go down again. If the two large insurers that we have been speaking to do come in, as they have said they want to, they will need to make a mark and do some business.” With coverage terms already broad the easiest way for them to make an impact will be to adjust rates, she added. Marsh’s forecast for lower rates next year as a result of the scrapping of the ARP is shared by JLT. It has advised buyers against two year lock in for PI insurance. Mike Perry, Partner, JLT, said: "We are seeing a number of providers offering two year PII which obviously has its appeal, the avoidance of the annual renewal and piece of mind for a two year period. However as everyone is currently contributing towards the cost of the ARP, it is very possible that premiums will drop for many solicitors next year and two year deals are simply a way of locking clients in at a potentially higher than market price.” According to Ms Neilson-Moore, a decision over two-year cover will depend on whether you want peace of mind or the ability to negotiate. “If you pick a proper carrier to start with you don't have to worry about being with a carrier for two years. The bigger firms may want to know what their premiums are next year." This year’s Solicitors’ PI renewal has seen a rise in the purchase of insurance from unrated insurers, agreed the Marsh experts. This is a ‘worrying trend’ and a ‘concern’, said Mr Cooper. Some smaller firms are turning to unrated insurers to keep down insurance costs and in cases where they have few other options. Whilst Mr Cooper admitted that unrated insurers do fulfil a role, he said that the larger firms ‘do not need to go there’. Ms Neilson-Moore conceded that struggling firms will go to the insurer that offers the best price, but urged firms of any size to purchase cover from insurance companies with a rating. Recent consolidation amongst law firms has increased concern amongst insurers as to whether risk management is able to digest and keep pace with these mergers and acquisitions, said Ms Neilson-Moore. There have been high profile cases where it appears risk management has not coped well. For example, the US-based global law firm Dewey & LeBoeuf LLP, formed in 2007 through the merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, collapsed under the weight of scandal and corporate failure. According to Ms Neilson-Moore, risk managers are assuring Marsh they are able to cope. “All those that have had mergers are asked by insurers how are you going to integrate the function and how did you do due diligence? But one of the things you find is you do not know whether a merger is going to be successful until many years down the road,” said the broker. She admitted that the current consolidation could, therefore, cause problems down the line. But, in general, there has been an ‘enormous push’ within the larger firms towards best practice risk management, continued Ms Neilson-Moore. “You will always find inconsistencies, but firms are really working hard at risk management.” The quality of risk management very much depends on management support, Ms Neilson was keen to point out. And some risk managers still struggle to be heard, she added. “If you don't have strong management backing that can make it happen inside a firm then you are going to have troubles. The risk managers, particularly if they are not at partner level, often do not have sufficient power to push their views through. They need management backing from management that is strong enough to bring the partnership with it,” she concluded.

Large firms face favourable solicitors’ PI market with abolition of ARP likely to further reduce rates

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