Professional indemnity insurance (PII) has been a thorny topic in many sectors, including conveyancing, for the last few years. A mandatory requirement for many different sectors, but something which has become increasingly challenging to secure over the last few years for many professional services firms including conveyancers.
There have been a number of factors which caused the PII market, across all sectors, to harden. One has been the number of insurers who have exited the professional advice market in recent years, due to concerns about uncertain risks. This has impacted mortgage advisers, independent financial advisers and law firms.
For the conveyancing sector, issues arising from Brexit, Covid and the extended Stamp Duty Land Tax (SDLT) holiday made insurers wary of a potential increase in claims. Under pressure themselves to improve profitability, some insurers refused to take on new clients, cover became difficult for existing practices to access, and we saw a steep increase in prices.
This became serious enough in 2021, for the Council for Licensed Conveyancers (CLC) to intervene after two insurers, concerned that the SDLT holiday would spark a fresh slew of claims, offered firms cover that did not comply with our minimum terms and conditions (MTC) of insurance by not integrating run-off cover or by requiring very high excesses. For the 2022 renewal round, we implemented reforms to review our policy on PII and to ensure that both firms and insurers were doing everything possible to stand the best chance of securing cover in a timely manner.
So, with that backdrop, what has this year’s PII renewal season looked like?
2023 PII review
Following the launch in 2022 of the revised and strengthened CLC Participating Insurers Agreement and MTC, 2023 has seen a 100% compliance rate for all terms issued to CLC practices. This is good news and, is evidence of the productive meetings held by the CLC with brokers and insurers in the months leading up to and during the PII renewal period. We aim to repeat those meetings again in the coming months with insurers and brokers to both review this renewal round and look ahead to the 2024 season.
This year practices reported feeling more confident about shopping around for best value premiums and many reported seeing improved competition. This seems to be supported by the growing number of practices changing their insurer of choice following two years when we saw little movement. The improved mix and balance of insurers will also be more attractive to businesses thinking about transferring all or parts of their existing business into CLC regulation.
In recent years, practices with less than two full years trading history had told us that they found changing to an alternative insurer more challenging than established practices did. This year however, we saw no real indication of this. Indeed, practices were able to obtain terms irrespective of their type of business structure, or the length of time that they had been trading. As you would expect, those practices with less well managed claims histories, or with a history of engaging in high-risk areas of work, were less likely to attract terms quickly. Maintaining robust controls around this and keeping records of transactions that show sound judgement and technical expertise, seems likely to be a continuing theme for insurers.
This renewal round saw the introduction of a requirement on insurers to notify practices of any intention not to renew terms no less than three months in advance of the 30 July deadline. The CLC introduced this requirement to ensure that affected practices would have a reasonable and practical period to seek alternative PII or trading arrangements to protect the interests of their clients. We have also seen practices utilising this new provision to purchase up to 90-days extended cover if necessary to secure terms or make alternative business arrangements. This has helped those who are managing planned closures and mergers to focus on clients’ needs and the completion of any advanced transactions, as well as transfers of instructions in realistic and achievable timeframes. This has ensured a much more controlled approach at what can be a challenging time for practice owners and staff.
Each year, insurers reflect on their risk appetite and 2023 has seen discussion stemming from the requirements of The Building Safety Act 2022. The CLC has been pressing the government to ensure that there is greater clarity over roles and liability in the implementation of the Act, which is aimed at ensuring that buildings that are affected by cladding issues following the Grenfell tragedy. We have been encouraged to see some insurers conduct evidence gathering exercises over a twelve month or so period, to help them assess where there is perceived, and actual risk based on an improved understanding of the typical trading profile and risk appetite of CLC practices.
This seems to be a proportionate approach which would not see liabilities fall automatically to property lawyers. While lawyers need to gather and explain information about a property to clients, it is for other experts to make and report on their judgment of the safety of the property.
Overall, this renewal period has been far more successful than those from the previous few years. Partly due to a stabilising of the insurance market and many of the big perceived risk factors, such as Covid, Brexit and the SDLT holiday now being in the rear-view mirror. However, a considerable part of the success has been down to the collaborative approach between the CLC, insureds and the insurers. Fresh risk factors will undoubtedly surface in the future which will once again bring uncertainty to the insurance markets, such is the way of life and business. However, I would hope that the groundwork we have laid over the last two years will ensure that we continue to see collaboration between all parties in order to keep the sector stabilised.
Stephen Ward is director of strategy and external relations at the Council for Licensed Conveyancers