Compl-i - February 2010

Risky business!

The solicitor’s profession is reeling from the latest renewal season. In spite of the Law Society’s attempts (through roadshows, practice notes and discussions with insurers and the SRA) to help firms prepare early for what was always going to be a difficult renewal for many, there were still horror stories emerging from both sides. Insurers complained that they were still receiving applications very late in the day often with missing information, whilst some firms complained that they had felt abandoned by their brokers who had not kept them up to date or who could not be contacted. One firm I heard of was told by their broker with only a few days to go (and only after the firm had chased them) that the insurer to whom the application had been submitted had withdrawn from covering their size of firm! Frantic efforts then had to be made to prepare a submission to alternative insurers which presented the firm in the best possible light.

Thankfully that firm was able to secure insurance but for many, this has not proved possible. Their only options are to either shut down or to enter the Assigned Risks Pool (“ARP”). Over the last couple of years, the numbers in the ARP has risen dramatically, from 166 in 2008 to 358 at present this year. The figure is still fluctuating but undoubtedly the numbers will have at least doubled from the previous year and equates to approximately 3% of registered firms, a not insignificant number. Firms in the ARP face having to pay premiums of up to 27.5% of their turnover (assuming they applied to enter it in time) or upto a staggering 47.5% if they didn’t. Not only that but they also have to pay the costs of inspection and monitoring by the SRA. Who would want that?!

There has been much talk about the single renewal date being the cause of all the problems and I do not propose to debate the arguments for and against here. But whatever view of that is taken, it is by no means the sole cause. Regrettably, there are still many firms of varying size who are not taking risk management seriously enough and from an insurer’s perspective, it is understandable why they would not want to cover such firms.

Insurance is but one of the many risks and threats that law firms now face. The economy has meant that redundancies in law firms are rife, property and commercial departments continue to struggle, more financial constraints are being imposed by banks and “tesco law” is just around the corner which will mean many firms having to face stiff competition from market leading household names.

Firms can no longer bury their heads in the sand or seek to place blame elsewhere. Those who do will unfortunately not survive. Instead, they must become pro-active and take charge of their own destiny by adapting to the world around them, differentiating themselves from the other competition and implementing a risk and compliance regime which will help not only persuade insurers that they are a safe risk to cover but will inevitably improve the bottom line too.

Firms need to act now in preparing for next year’s renewal by reviewing their risk management strategy and systems, making improvements and monitoring. Waiting until next June when the renewal forms start landing on desks from brokers could be a recipe for disaster.

Michelle Garlick is a partner in Weightmans’ Professional Risk team and head of Compl- i , a consultancy service providing advice and assistance to law firms on compliance, regulatory and risk issues.