About Solicitors Professional Indemnity Insurance (PII)

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About Solicitors Professional Indemnity Insurance (PII)

PII is a form of liability insurance that protects you in the event of a claim made by a third party arising from your practice’s provision of legal services. The claim could arise from them alleging:

  • A negligent act or omission
  • Defamation
  • A breach of trust and/or confidentiality

PII is underwritten on a claims-made basis, which means that the insurance policy in force when the claim was made will deal with the claim, not your insurer at the time you provided your services. PII is often referred to as ‘long tail liability’, as it can take several years before a loss occurs following a notification of claim or circumstance. In light of this, insurers will often discount your premium as it has no ‘tail’, meaning as your practice grows and years pass, often your insurance will rise as your tail of potential liability increases.

It is incredibly important to notify your insurers the moment you become aware of a claim or of a circumstance that may give rise to a claim. This applies whether or not you believe that the claim has any merit, that the claim is small, or that it will fall within your policy excess. Your PII policy is there to protect and defend you from spurious claims too.

Your legal requirements

The Solicitors Regulation Authority (SRA) has mandated that every practice in England and Wales has an Insurance Policy to comply with the SRA’s Minimum Terms and Conditions (MTC). The availability of such cover can only be sourced by one of the SRA Participating Insurers. Under the MTC, each insurer must provide you with the ability to purchase run-off coverage in the event of your practice ceasing to trade. Run-off effectively provides six years of coverage from the day your policy ceases.

The cost of this will vary between each Participating Insurer but is generally a multiple of the last annual premium ranging from 2 – 4.5 times. This multiple is usually provided at the point of issuing terms, so this may be a factor when you come to select your insurer.

Insurers will look more favourably on your practice if you can show evidence of a lump sum or incorporate a provision for run-off cover into your yearly cash-flow projections.

The intended status of your practice will determine whether you require a minimum of £2 million or £3 million limits of indemnity cover. A £2 million limit is required for all Sole Practitioners and Partnerships, whereas for all Limited and LLP entities the limit is £3 million.

Selecting your broker

Selecting a broking representative with comprehensive and direct insurer market access is crucial. Anyone professing to be a specialist broker should be able to demonstrate this to you. You should be provided with a clear understanding of which insurers they can, and will be, approaching on your behalf. You should get this information in writing and look to agree on timescales too.

Importantly, you will require an insurer quotation to accompany your presentation to the SRA. You will not be required to accept or proceed with this quotation, but significantly, your application will not progress until having one. At Lockton, we will send you the first quotation we receive, allowing you to continue the SRA application while continuing to negotiate with insurers, meaning delays are minimised.

It would also be prudent to gain an understanding of their claims infrastructure and capabilities. While no practice wishes to experience claims, in the event you do, you want to be safe in the knowledge that you are being represented by a team that has the experience and expertise to assist you in your hour of need.

Regardless of the size and the profile of your practice, a fully comprehensive market exercise cannot be undertaken without Lockton being involved in the process too.

How Lockton can help

Professional Indemnity Insurance (PII) is one of the largest expenses any practice is faced with annually. At Lockton, we recognise this, and we aim to shed some light on how best to position your new practice so you can select the right insurer.

We tailor our solutions specifically to your firm’s requirements by sourcing appropriate cover that meets your needs and aligning you with an insurer who is willing to work in partnership with you now and just as importantly in the future.

As an intermediary between you and the insurance market, we get a significant amount of the information we need from your Insurer Presentation. Your presentation should give us a clear picture of your practice’s risk profile today and your plans for the future, which will help us find you the best insurance solution.

You must include the following key information in your Insurer Presentation:

  • A fully completed New Start-Up Proposal Form 
  • Comprehensive business plan, including cash-flow for the next three years 
  • CVs of all fee-earning staff in your new practice

Our recommendation of appropriate Insurers will be based on your risk profile today and will also consider your plans for the future. Aligning your practice with an insurer who wishes to go on the journey in partnership with you is important.

 

Author: Brian Boehmer, Lockton

 

Lockton provide solicitors with professional indemnity insurance solutions, alongside a full suite of insurance and risk services. With access to A-rated markets, whether you’re a multinational LLP or a small business, we can give deliver best-fit, great value PII solutions for your business. As well as Professional Indemnity insurance, we also offer a full suite of additional risk solutions including asset/insolvency protection, management liability and risk, claims and employee benefits consultancy.

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