Why Do Solicitors Need Professional Indemnity Insurance?
Solicitors’ Professional Indemnity Insurance (PI) is mandatory for all practicing law firms as a requirement of the profession’s regulatory bodies. By providing cover against civil liability claims, it enhances a firm’s financial security, while also protecting clients. Below is some more detailed insight from James Kerr, Deputy Product Manager for Professional Indemnity at Travelers.
Like any form of insurance cover, PI is a product you buy and hope you’ll never use, but it’s also a very useful cover to have in place. After all, allegations of professional negligence, whether well-founded or not, can be difficult and expensive to defend, especially when they relate to events from a distant time. Key staff may have left and even those who were involved can often forget crucial details.
By Mitigating This Threat, PI Provides Peace of Mind… and Much More
If you are held liable for a client’s financial losses resulting from advice you, or fee earners in your firm, have given, PI can help protect you. In doing so, it helps you focus on running your firm – safe in the knowledge that any exposures arising from the professional advice you provide, are being managed effectively.
How Much Cover Does a Small Law Firm Need?
Your clients will expect you, as a provider of professional services, to be sufficiently insured. Also, the Solicitors’ Regulatory Authority (SRA) requires a specified level of cover to be in place as a condition of membership. The terms of this cover must be no less broad than their Minimum Terms and Conditions.
In addition, since April 2015, the SRA has required firms to assess themselves and purchase a level of PI commensurate with their own risk exposure. For example, yours may be a medium-sized firm but if you have large corporate clients instructing you on bigger, more complex transactions then your liability for any losses will increase as a consequence.
So, you must consider the size of your clients and the contract values involved in order to correctly gauge your potential exposure. In simple terms: take the time to focus on what you’re doing, who you’re doing it for and how much it could cost if you were liable for their loss.
You also need to be mindful when agreeing to indemnity limits in client retainers. Some clients will only appoint firms that carry limits of £10 million or more, in which case, you should either:
- Place your insurance with an insurer that can offer limits above the minimum amounts required by the SRA, or
- Purchase ‘top up’ cover (also known as excess layer capacity) to reach your desired amount
What Should Law Firms Do If Struggling to Secure PI?
Preparation is vital. Start the process as early as possible so you have enough time to compile your renewal information.
Remember that the proposal form is an essential part of the renewal process. When completing it, try to be clear and concise and provide plenty of supporting information. The latter can really improve the underwriter’s understanding and provide the context they need to accurately assess your risk.
One of the most important rating factors is a firm’s claims history. Insurers appreciate that law firms may have claims, so what they usually look for is evidence that lessons have been learned and procedural changes implemented to prevent reoccurrence.
By providing the full story, you give insurers a favourable impression of how well your company is run. This should help you achieve the cover you want at a fair premium.
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