Limerick Solicitors
Bar Association
Professional Indemnity Insurance
Learning from 2010 and preparing for
2011
14th April 2011
David Rowe & Pauline McNamara
Agenda
Professional Indemnity Insurance – learning
from 2010 and preparing for 2011
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What is Risk Management?
The 2010 renewal
How the underwriters arrive at a premium
How to move on from a claims history
Preparing for 2011
Where does Risk Management fit
in
Running a law firm was relatively easy
• You only had to worry about getting the work
• Then managing the cost base became a
requirement to survive
• Then getting paid became an issue and firms were
forced to improve their procedures
• Now Risk Management has become a necessity –
lack of Risk Management can prevent a firm
trading (no cover) or render it not viable (premium
prohibitive)
What is Risk Management?
What can go wrong and what is the potential
damage caused?
How can I limit the number of things going
wrong?
Accepting that things will go wrong - what
systems and control can I put in place to limit
the effect of things that do go wrong?
Risk Management – the build
up
• Volumes of business up year on year (until
2007)
• PI insurance premiums fell (less premium
for more risk)
• Firms found it difficult to service the
volume - shortcuts taken
• The financial dynamics of property markets
changed almost overnight
the build up cont’d
• Clients and financial institutions started
looking for potential escape routes and
made claims
• The profession saw a significant increase in
claims against it
• The insurers began incurring significant
losses
• Premiums increased
• Insurance companies began to take a more
selective approach
the build up cont’d
• Insurance companies became interested in
the risk profile of the profession
• When they looked they did not like what
they saw and regard the profession as high
risk and substantially unmanaged
• Now likely to insist on firms managing risk
• Encouraged by the number of firms who
have voluntarily attained risk management
accreditation, but legacy problems persist.
The stakeholders - the
insurance companies
• See solicitors as high risk, following high
claims
• Will pick and choose
• Will look for systems to mitigate risk
• Will audit their clients
• Want to work with firms to improve their risk
profile
• Accept that problems occur, looking for post
loss corrective actions
The stakeholders - the
profession
• Trading conditions difficult and feel they
cannot take more of a burden
• Renewal in December 2010 very difficult,
multiple forms, uncertainties in getting
cover at all and huge premium increases
• Feel overregulated and see risk management
as more of the same
• Practitioners who are claims free struggle to
see the value in this, most accept the
insurers hold all the cards
The Insurance Market
• XL through AON
• SMDF
• Chartis Insurance
• Liberty International Insurance
• UK General Insurance Ireland (UKGII)
• Axis Insurance
• Assigned Risks Pool (ARP)
Challenges
• Late exit of RSA and Quinn Insurance
• Chartis heavy handed approach to existing book and
not in the market for new business
• AON/XL very aggressive/ large primary limits
• New entrants to the market very late in process – last
week in November – looked for risk management
reports/file audits
• New entrants required supplementary forms
• Lack of consistency in underwriting criteria applied –
Chartis in particular
Qualified Insurer by premium & firms
covered
Insurer
Market Share by
premium
Last years market
share
XL Insurance Company Ltd
34%
21%
SMDF
33%
41%
Chartis Insurance Ireland Ltd
12%
8%
UK General Insurance (Ireland) Ltd
8%
-
Liberty Mutual Insurance Europe Ltd
8%
7%
Axis Speciality Europe Ltd
4%
-
Allianz Global Corporate & Speciality AG
1%
1%
RSA
9%
Quinn Insurance
11%
Hiscox
2%
Pricing - 2010
• Up 14% overall
• Low risk firms (per solicitor)
– Start ups – Established firms – Larger established firms -
• High Risk
– Up to €50K to €100K
€6K to €10K
€10K to €15K
€7k to €10K
The Assigned Risk Pool
• 38 firms
• Premiums
– 20% on 1st 500K of fee income
– 15% on next €1M
– 9% above that
All subject to a selective review
• Overseen by PII Committee
• Investigation by way of risk management
audit/terms of reference
• 2 year maximum stay
How A Premium Is Arrived At
Key underwriting considerations 2010
• Practice profile – size, distress, breakdown of
work areas etc
• Fee income/ability to remain in business – left
with run-off potentially
• Historic split in revenue generation
• Claims
• Risk management section of proposal/appetite
to RM - make or break in some cases
• Undertakings – register in place?/ numbers
outstanding
Moving On From A Claims
History
• A visible ‘line in the sand’ between the old regime
and the new – new procedures
• Time (4 or 5 years)
• Full file and undertakings review
• Change in management/ownership of the firm
• Independent Risk Management Audit
Emphasis in 2011
• 2 insurers auditing their client, 2 others currently
considering. ARP auditing.
• Independent Risk Management Accreditation
• Outstanding undertakings – any reasons why they
cannot be discharged – regular review of register
• Key dates policy & procedures
• Title issues
Making the Renewal Easy
• Go to a specialist broker
• Only apply where you might get cover
• Fill out the forms carefully
• Keep claims moving/ resolve them
• Meet your broker/ insurer in advance
• Try to save monthly or arrange finance
• Complete an independent risk accreditation
How the Law Society can help
• Closed period for withdrawal/new entrants
• Scrap the common renewal date
• Common proposal form
• Master Policy??
• Review run-off provisions
• Enforce obligation to quote within 10 days of proposal form
• Proposal forms out earlier
Implementing Risk
Management – the path
• Identify what you need to have in place
• Define your standard policies and procedures
• Implement and train – bring everyone along
• Review the past for errors
• Put together the registers
Implementing Risk
Management – the path cont’d
• Have an audit done
• Go for level 1 (Essentials) if this is new or
level 2 (Excel) if some systems in place
• Audit consists of
– Review of policies/procedures
– Ensuring all in firm know and use procedures
– File/undertakings review
• Work on the gaps, this is long term
Implementing a risk management strategy
Practical Tips
• Allocate sufficient time and resources – a partner
needs to lead the effort
• Risk management is a culture not an event – it is long
term
• Very few firms in Ireland would pass the standard
without preparation – this is as expected
• Make it an office wide project, the benefits come from
eyes and ears throughout
• Remove the fear factor – this is a positive step and the
benefits are significant
How to start - choices
• Do it yourself
• Take it on with external assistance, preaudit, policies and procedures, experienced
help.
Sample of Requirements
Client Management (1 out of 8 standards)
• Formal procedures required for engaging new
clients, limitation of liabilities etc
• Who and on what terms
– Review creditworthiness
• Can we do the work?
– Resources and expertise
• How do we staff it?
• Partner involvement from the start
Client Management (1 out of 8 standards)
cont’d
Policies needed
- Partner sign-off of file matter opening forms (ensure
compliance going forward)
- Engagement letter/S68 letter put in place – but
standardised where possible
- Conflicts of interest policy
- Anti-money laundering policy
- Complaints policy (ensure you are aware of and adhere
to the policy)
- Disengagement procedures (in place – but use of
disengagement letters recently introduced)
Common myths
• Risk management is a bureaucratic exercise of no
value
• Risk management is an event you have to comply
with once a year (passing the exam)
• Doing nothing is an option
• This is a contentious process where the Risk
Management Auditor wants to highlight your
weaknesses
Conclusions
Benefits from the practitioners perspective
• Achievement of an approved quality standard
• Improved efficiency
• Reduction in complaints and potential claims
• Lower insurance premium
• Savings in time, worry and expenditure
• Greater profitability
• Potentially a win/win situation
Conclusions
• Insurance is now the 3rd biggest cost in running a
firm
• 2010 renewal very difficult, 2011 unlikely to be any
better
• Pricing levels to remain at current levels
• Now part of staying in business – can be fatal
• Being pro-active is key, don’t just wait for it to
happen
• Has become part of doing business and making a
living
For further information contact:
David Rowe
Managing Director
Outsource
Ph: 01 6788490
Email: [email protected]