Period of Renewal

Solicitors’ professional indemnity insurance (PII) commentators broadly agree on the condition of the PII market and insurers’ attitude towards risk. Firms that maintain sound risk management and business practices, and can effectively communicate these to underwriters, are perceived as preferred risks that enhance their negotiating leverage. But has this not always been the case?

As the October renewal season approaches, we offer perennial tips on presenting your firm to insurers for the best outcomes, such as preparing and submitting documentation early – but there are variables. Brokers play a crucial role by providing insights on risk trends that fall outside the usual ‘renewal proposal’ box, particularly regarding underwriters’ latest concerns. So what is currently on the underwriter’s risk radar?

Profiling risk

Insurers’ proposal forms, the principal checklist for profiling a firm’s risk exposure, will address most important risk factors. Some exposures, perhaps because of perceived transience or complexity, might be addressed separately. Dealing with cybercrime is currently a feature that we consider an ‘out of the box’ category and, as such, is an important consideration when we assist clients with renewal preparations.

Understanding the perennial fundamentals that underpin the PII application preparation process is crucial. This includes:

1. Timeliness. Avoid preparing insurance applications at the last minute. Rushed presentations seldom create a strong narrative of a firm’s structure and activities. Late submissions might also lead to a firm missing any renewal incentives on offer.
2. Collaboration. Preparing a PII application is typically a team effort. Assigning tasks early allows colleagues to allocate resources and generate and verify the information they contribute to your renewal presentation.
3. Renewal process structure. The renewal preparation and negotiation process follows a specific structure. By understanding the sequence and timeline of renewal arrangements, you can efficiently organise your efforts and minimise the need to backtrack to address gaps.

Preparing documentation

Preparing your PII renewal documentation involves many components, making the process complex and demanding. However, our experience shows that a structured approach can simplify and streamline this task. The following steps can assist:

1. Understanding overall claims and noting significant losses is crucial. Ensure reserves are up to date for open claims and mark closed claims accordingly. Underwriters evaluate open and closed claims differently, so document their status accurately. Ongoing claims reviews will help shape risk controls.
2. Insurers will seek proof that you have identified the root causes of losses and implemented corrective actions, updating policies and training materials to match your latest operational and risk management standards.
3. Business and resilience planning is crucial to renewal preparation. It conveys objectives for the upcoming year and demonstrates that a firm is well-managed and financially stable.
4. Underwriters rely heavily on the proposal form and supporting documentation submitted during renewal negotiations to understand a firm’s operations. The quality of documentation greatly influences how underwriters perceive a firm.
5. As the renewal season unfolds, underwriters face mounting workloads. Recognising their heightened demands, despite efficient back-office systems, is crucial. We advocate prioritising renewal submissions to ensure prompt attention amid their increased responsibilities.
6. Following the completion of the quotation process, a broker will arrange a discussion to review available options. The broker will formally present the most favourable option after this initial assessment. While it might seem that the best terms are those with the lowest premium or excesses, factors such as claims support, personal guarantees and claims disclosure obligations should also be considered.

Cyber risks

Cybercrime is an ever-present risk for all businesses, not just solicitors, but we know that the profession is a specific target. PII proposal forms contain detailed sections regarding the firm’s IT infrastructure; however, in our experience, underwriters feel more comfortable insuring firms that can further evidence their cyber-event preparedness. But, given changes to the PII minimum terms and conditions (MTCs), this may be a moot point for PI insurers.

Since 2021, the MTCs have adopted what became known as an ‘affirmative’ position regarding the extent of cyber coverage provided by the PII policy. Broadly speaking, first-party losses are either assumed by the firm or covered by a specialist cyber insurance policy, with third-party losses remaining with PI insurers. Although affirmative cover clarifies what is and is not covered by the PII policy, the impact of a cyber-attack can be far-reaching. It has the potential to generate both first- and third-party losses, particularly if the firm fails to respond to the breach effectively. Does the firm have a tested response plan in the event of a cyber-attack to find out what happened, try to contain the breach, assess the risk and act to protect those affected? Can this be achieved within 72 hours while coping with potential disruption to your operation, evaluating extortion demands and taking measures to protect the firm’s reputation?

Cyber-attack response is just one example where supplementary information will help present your firm in the best light to insurers. There might be other risk-profiling issues relevant to a firm’s size and operations where additional information might be helpful. Your broker will be able to identify these for you.