Managing Risks and Managing PI Premiums

 In Practice Management

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MANAGING RISKs in law firm

All law firms in England & Wales are required to obtain professional indemnity insurance with a common renewal date of 1st October. This requirement creates a scramble every September with about 10,000 firms looking to secure the minimum cover required by the SRA.

A growing problem

With only a finite number of insurers in the market there is fierce competition to obtain a reasonable quote with some insurers not releasing their quotes until the second half of September. The firms with the best claims records will never have a problem finding the insurance at a reasonable price but for most firms it is bought at the eleventh hour with little choice available.

It would appear that premiums will be up by at least 10% in 2010 as insurers look to cover the claims that have been paid out in recent years and the growing problems that need to be covered by all insurers in the Assigned Risks Pool. There are already nearly 300 firms in the ARP and some commentators are predicting that this autumn the numbers could exceed 500. This is worrying for everyone as the insurers have to cover losses in the ARP even though they may not collect the premiums being quoted to firms in the ARP.

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Taking control of the situation

While it may be too late to do anything this year, all firms should think again about whether they are doing everything that they can to manage professional risks and, as a consequence, to keep their insurance costs at a reasonable level. There are a number of things which can be done. A good first step for many firms is becoming Lexcel accredited. This standard is recognised by many of the insurers and forces firms to look at the procedures which they have adopted which are designed to manage risks.

Key Procedures

The key procedures for most firms cover the way in which:

  1. New clients are taken on or rejected as the case may be;
  2. New matters are taken on and engagement letters agreed; it is interesting to see how many engagement letters do not clearly scope the nature of the work being undertaken, provide a clear estimate of the likely costs or provide clarity on how money on account will be dealt with and interim bills will be raised. It goes without saying that if there is a clear engagement at the outset then there is less chance of problems arising later.
  3. Clients are updated as matters progress so that there are very few nasty shocks and surprises. Some fee earners are better than others at keeping clients informed on progress. Departmental heads normally need additional information to see if other fee earners are performing their roles properly.


Many firms claim to have good procedures but it is interesting to hear the insurers say that most claims are notified in the last two weeks of the policy year which suggests otherwise. Insurers are more likely to trust firms who can demonstrate that they have adopted sound procedures and who notify possible claims promptly and throughout the year.

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