Softer UK PI market drives fewer law firm closures

Softer rates for professional indemnity insurance (PII) in the UK, driven by capacity from new entrants, has seen the number of law firms closing due to problems securing mandatory cover fall for the first time in five years, according to chartered accountants Hazlewoods.

The number of UK law firms that closed because of failure to get PII or afford the premiums stood at 34 in the year to October 2023, down from 36 the previous 12 months and almost half the peak of 65 firms in 2019/20.

“This has been driven by more insurers entering the market, as well as an increased appetite from law firms to switch insurance providers for a better rate. This has led to a softening market for law firms looking to renew their PII,” Hazlewoods said.

“The high cost of PII over recent years has placed enormous stress on many firms,” it added, noting that the sudden increase in law firm closures from just 14 in 2018/19 to 65 the following year followed a hike in rates.

Broker Howden found that 65% of its law firm clients paid less for PII premiums in October 2023.

Ian Johnson, a partner at Hazlewoods, said: “Law firms will be very glad that PII premiums appear to have begun to soften – some firms had been finding coverage difficult, even at very high prices.

“It’s still a very tough market for firms that insurers see as higher-risk – such as those that handle larger volumes of conveyancing work – but for others the cost of PII appears to have settled somewhat.”

Hazlewoods said the law sector has seen an increase in merger and acquisition activity recently, which can be “an effective exit route” for law firms struggling to secure PII cover.