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PROFESSIONAL INDEMNITY INSURANCE

Insurers are under pressure to improve profitability. We completed a review of our Pll arrangements earlier this year, with changes aimed at easing the Pll renewal process and providing greater clarity and confidence for everyone involved. The changes practices need to know are:

Extension of Pll cover

In the event that a practice is unable to renew cover, the last insurer must provide a 90-day extension of cover. Practices may not take on new work during the extended cover period.

Run-off cover

We are maintaining integrated run-off cover. Insurers are expected to ensure that the annual premium they collect for Pll cover includes a sum that reflects the risk of the insured firm going into run-off during or at the end of that insurance year.

Excesses

We will allow a firm to have a higher excess in very limited circumstances following a joint submission from the insurer and practice that makes a clear and compelling case. We have introduced a further band of maximum excesses for the largest practices, of a further 1% on fees above £1,000,001.

Quotes

We are introducing a new requirement on practices to have submitted a PIl proposal to at least one of the approved CLC insurers no later than 1 May each year. Insurers receiving such proposals will have to issue quotes no later than 1 June.

Premium non-payment

The CLC Licensing Framework has been amended to make explicit that CLC-regulated lawyers who have been managers in a practice that has not paid any required Pll premiums will have this taken into account if and when they seek managerial positions in different practices.

Getting ready for renewal

We are urging practices to think more carefully about the trading profile they present to insurers. You should explain the types of transactions you are prepared to act on and show the insurer that you have processes in place to mitigate the risks involved.

Cyber cover

We encourage practices to consider taking out specialist cyber cover. The following are currently emerging as minimum requirements imposed by

  • Use of multi-factor authentication for cloud-based services and for all remote access.

  • No remote access without a virtual private network.
  • Regular cyber-security awareness training, including anti-phishing.

  • A segmented back-up solution.
insurers:

Buyer-funded developments Buyer-funded developments, also known as fractional developments, continue to be a major red flag to insurers. They involve the use of individual deposits of as much as 80% to fund the purchase and build of the development. There have been multiple examples of developers failing and deposit money being lost. In some cases, the whole scheme was a scam. Conveyancers have been used to provide a veneer of respectability and can find themselves on the receiving end of claims in the event of a development's failure.

Red flags to watch for include:

  • High deposits before exchange and high commissions from them for the seller

  • High and/or guaranteed returns of either capital or rental income

  • Complex and/or unfair terms

  • Little or no underlying legal work

  • Buyers mainly coming from overseas and/or not having separate representation

The conveyancer must undertake a high level of due diligence before becoming involved in any scheme of this nature. To help your decision, you might talk to your insurer about their view of the risks.

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