Guidance on preparing for your PII renewal

The annual professional indemnity insurance (PII) renewal period once again looms, writes Simon Treanor of the Law Society.

The last few years saw increases in premium levels due to ever-hardening markets arising from global issues in insurance markets.

However, due in no small part to hard work by the Law Society’s PII Committee, significant reductions have been achieved in the premium pool in the last two years, with an 8.4% reduction for 2022/23 and a 16.15% reduction for 2023/24.

While insurers continue to be cautious, it is hoped that we will see further reductions in premiums with the entry of yet another new insurer, Fortegra, this year, and increased capacity from existing insurers.

What caused the premium increases and reduction in recent years?

Premium = base rate + risk

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, solvency requirements, increasing claims due to COVID-19 and other high-loss events, 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, and so on.

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.

Risk end of equation

This increases the risk end of the equation, causing an increase in premium. This is called a risk-based hard market.

In such cases, the Law Society and firms themselves can take action to reduce risk and premiums, either by changing the minimum terms and conditions and/or by implementing robust risk-management procedures.

The hard market experienced by solicitors in the last few years is not caused by a poorly performing Irish solicitors’ PII market, but rather global losses being experienced by insurers that cause an increase in the base rate end of the equation.

This is called a ‘base-rate hard market’. This is why insurance premiums increased across all types of insurance in the market, and also why premiums can increase when you do not have any claims or increases in other risk factors.

Due to the increase in premium being predominantly caused by global issues, which are outside the control of the Law 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 predominantly saw a rise in premiums due to increases in base rate. As our market is performing well with regards to claims levels, the risk part of the premium equation remained low.

This low risk acted to minimise the increases in premium caused by the rise in base rates.

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 its profitability by increasing its 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 a base-rate hard market, insurers become conservative and seek to limit or decrease capacity.

As such, they maintain or increase profitability by increasing premium.

Reduction in premium

The Law Society has put a significant amount of effort into combating the increases in premium in recent years, despite the limited avenues available to do so in a base-rate hard market.

The Law Society, through its PII Committee, focused on building the reputation of the profession and our PII market as a low-risk market, stabilising the market, fostering strong relationships with existing and potential new insurers, and successfully attracting new insurers to the market, thereby increasing competition.

This strategy has been successful, with the total PII premium pool reducing by 16.15% last year, existing insurers increasing their capacity, and the entry of new insurers focused on smaller firms. It is hoped that this downward trend in premiums will continue for the 2024/25 indemnity period.

Tips for renewal

• Financing your premium. You should put financing PII premiums at the top of your to-do list, including use of savings or obtaining the necessary loan facilities.
• Bank of Ireland. 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 Law Society’s website at lawsociety.ie/member-services/practice-support/finance-scheme.

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 with 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 Law 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, 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. The firms that reported the greatest reduction in premium last year were those that shopped around. 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 are available 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 cyber-cover. 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 cyber-attack. You should discuss the possibility of obtaining separate first-party cyber-cover 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 cyber-attack. Such cover also makes your firm much more attractive to insurers, as it is seen as good risk management.
• It is the responsibility of each firm to ensure that you have PII in place before the mandatory renewal date of 1 December 2024. Confirmation of PII cover must be provided through the Law Society’s online PII portal by your broker within three working days of 1 December 2024 (on or before close of business on 5 December 2024).

Here to help

The Law Society is here to assist with any queries you have.

Further information on premium calculation tips for renewal, guidance, and helpful documentation can be found in our Guide to PII Renewal on the Law Society’s website at lawsociety.ie/PII.

You can contact the Society’s PII helpline by email: piihelpline@lawsociety.ie or tel: 01 879 8707.