Premium = Base rate + Risk
Why did premiums increase in recent years? Premium levels are calculated by an insurer by combining insurance base rates with risk mark-ups. Insurance base rates tend to be based on global issues for the insurer, such as their loss ratio across their entire book of business worldwide, increasing claims due to COVID-19 and other high-loss events, solvency requirements, and the poor performance of PII markets worldwide.
Risk levels depend on the performance of the domestic solicitors’ PII market, minimum terms and conditions, and individual risk factors for each firm, such as claims experience, areas of work, turnover, etc.
In a soft market, the base rates decrease and risk decreases or stabilises, resulting in a decrease in premiums. This premium decrease is accelerated through competition between insurers to gain clients by lowering prices.
In a hard market, either the base rate or the risk (or both) increases, causing an increase in premium. The usual cause for a hard market is a substantial increase in the quantity or quantum of claims, as we saw during the last downturn with conveyancing claims. This increases the risk end of the equation, causing an increase in premium.
In such cases, the Law Society and firms themselves can take action to reduce risk and the premiums, either by changing the minimum terms and conditions and/or implementing robust risk management procedures.
This hard market is not caused by a poorly performing Irish solicitors’ PII market, but rather global losses being experienced by insurers, which cause an increase in the base-rate end of the equation.
This is why insurance premiums are increasing across all types of insurance in the market, and also why your premium can increase when you do not have any claims or increases in other risk factors.
Because the increase in premium is being predominantly caused by global issues that are outside the control of the Society, changes to minimum terms and conditions, and improvement in risk management, can only minimise premium increases, but cannot stop them.
The Irish solicitors’ PII market has predominantly seen a rise in premiums due to base-rate increases, as our market is performing well with regards to claim levels, which has acted to minimise premium increases.
Other PII markets have seen much higher premium increases due to increased base rates and increased risk (due to increases in claims).
Capacity v Premium
In a hard market, insurers seek to maintain or increase their profitability in order to deal with increasing loss ratios and solvency requirements, including for events that would not have been factored into their underwriting criteria, such as a worldwide pandemic.
Usually, an insurer increases their profitability by increasing their capacity. Capacity is the number of clients, or solicitor firms in our market, that insurers cover. Increasing capacity usually results in premium levels staying stable.
However, in this type of hard market, insurers become conservative, and seek to limit or decrease capacity. As such, they maintain or increase profitability by increasing premium.
Tips for renewal
Financing your premium As it is expected that premiums will increase for the next renewal, you should put financing such premiums at the top of your ‘to-do list’, including use of savings or obtaining the necessary loan facilities.
The Law Society partners with Bank of Ireland on an annual basis to provide a finance facility for members who wish to finance payment for their PII premium, income tax, pension contributions or practising certificates. Information on premium financing can be found on the Society's website at www.lawsociety.ie
Some insurers offer the ability to stagger premium payments over the year, using either monthly or quarterly payments. You should ask your broker for assistance negotiating such staggered premium payments with your insurer.
- Make your broker work for their commission You should keep in mind that brokers are providing you with a service, are being paid a fee for same, and you are their client. Your broker should pay due regard to the interests of your firm, treat you fairly and provide you with good-quality service.
Your broker should be acting as your advocate, advisor and champion in the market. A good broker will not redirect you to the Society for assistance in obtaining insurance, as this is the role of the broker, not the Law Society.
As such, you should ask your broker what fees they get for placing your insurance, and what services they will provide you for that fee, and agree acceptable service levels with your broker in advance of the renewal. Remember, as the client, you are entitled to demand good-quality service from your broker.
- Do not rely on just one broker Brokers usually have access to only two or three insurers in the market. In order to maximise the number of quotes you obtain and your chances of affordable cover, you should send your common proposal form to all insurers in the market, with the exception of insurers that do not cover your type of firm. Even if you have been with an insurer for years, they could change their underwriting criteria, leaving you without cover unless you have a back-up. As such, if your broker does not have access to the entire market, you should use more than one broker.
- Apply early As mentioned before, insurers have limited capacity and so will have a maximum number of firms that they are willing to cover. You should apply as early as possible to ensure that you obtain a quote before the insurers close their books, even if you have been with your insurer for a number of years. The common proposal form and guidance have been published on the Law Society’s website.
- Variable renewal dates Variable renewal dates have been available since 2011, and you should discuss with your broker whether they are right for you, with the caveat that you may receive a higher quote outside of the downward pressure of the renewal, and insurers may not be willing to write cover mid-year due to limited capacity.
- First-party cybercover Your PII provides third-party civil liability cover and, as such, it does not provide first-party cover for your losses in the event of a cyberattack. You should discuss the possibility of obtaining separate first-party cybercover with your broker as it should act to protect you from such losses, and also give you access to experts to rectify IT gaps and PR issues after a cyberattack. Such cover also makes your firm much more attractive to insurers, as it is seen as good risk management.
Further information on premium calculation tips for renewal, guidance, and helpful documentation can be found on the Law Society’s website at www.lawsociety.ie/PII.
You can contact the Society’s PII helpline by email: email@example.com; or tel: 01 879 8707.