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Five Factors Which Could Affect Your Firm's PII Premium

Five Factors Which Could Affect Your Firm's PII Premium

Obtaining professional indemnity insurance (PII) cover is a mandatory requirement that legal firms need to practise but can represent one of their single largest expenses. While some solicitors may consider PII to be another unwelcome cost, it can be a lifesaver when things go wrong.

PII provides security and financial support for firms when they most need it while ensuring important public interest protection for civil liability claims. However there are five key trends which are currently influencing the cost of premiums and may even jeopardise a firm’s ability to obtain PII protection in the future.


Over £85m has been stolen from British law firms since 2014 by hackers via the so-called ‘Friday afternoon fraud’ scam, with one firm losing £173,000 when criminals posed as employees of a bank. Practices lacking robust security and IT systems are particularly susceptible to unscrupulous activity and could see their premium and run-off cover significantly increase if they fall victim.

Investing in modern technology and introducing risk management measures, such as electronic funds transfer policies and IT penetration testing, can keep criminals at bay from accessing sensitive client information to ensure average PII premium costs remain lower.

Wesleyan Bank provides affordable payment over time solutions to enable law firms to invest in vital security technologies to safeguard their professional reputation and reduce the likelihood of claims being made against them by their clients.

Taking out separate cyber insurance

More than a fifth of UK law firms have been targeted by scammers in the last 12 months. This has prompted many to consider taking out cyber insurance policies to mitigate the financial impact from cyber crime. Experienced and trusted PII providers, such as Wesleyan, have specific cyber insurance solutions covering loss in the event of a data breach and premiums for these insurances can be paid for over time using finance.

Areas of practice

A firm’s area of practice can affect the cost of PII and dissuade some insurers from offering insurance at all. High risk areas include conveyancing, personal injury and wills and probate.

Conveyancing is particularly scrutinised by insurers and brokers as a significant amount of the £56 million of payments made by the Solicitors Compensation Fund since 2013 is thought to stem from this area alone. As conveyancing continues to increase for many law firms, so too will the cost of PII cover as the amount of income they derive from this area can drive up the price of their premium.

To avoid cash flow struggles, solicitors should seek a specialist PII provider who can source and secure the right insurance premium for them as well as funding it. Many now offer early renewals, mid-term extensions and 18 month policies (instead of just 12 months) which allow firms to gain additional peace of mind over a longer period when they are faced with greater exposure.

Claims history

PII insurers and brokers evaluate a practice’s claims record over the past five to ten years as a likely barometer of future incidents. Unsurprisingly, the frequency and size of previous claims are taken into account and have a major bearing on a firm’s premium.

To reduce the possibility of being refused PII cover, solicitors should maintain a comprehensive record of their firm’s claims history in addition to the participating insurer’s claims summary. As well as documenting what happened and why, it’s equally important to evidence what procedures have been put in place to minimise the chances of a similar incident from occurring again.

Market conditions

Following the closure of the assigned risks pool (ARP) in October 2013, firms can obtain mandatory PII cover via participating insurers throughout the year instead of being restricted to renewing on 1 October as before. This has resulted in a growing trend of practices seeking to take advantage of ‘softer’ market conditions to take-out longer term policies at more affordable rates. PII premiums were 8% lower this year, with the average premium falling for firms of all sizes.

According to analysis gleamed from the Law Society’s annual PII survey, over a third of law firms now have policies longer than 12 months (compared to 15% in 2015), with 18-month policies being the most popular alternative choice.

It’s not all good news though. When contemplating closure without a successor, firms must have six years’ run-off cover in place which the participating insurer is obliged to provide against losses caused by professional negligence. But according to the same survey, the average cost of run-off cover has risen from 250% to 300% over the last year, forcing many solicitors to reconsider their retirement plans.

Choosing the right level of PII cover can be something of a minefield for law firms who can be significantly impacted emotionally and financially by a civil liability claim. It’s important that they choose an experienced and reputable participating insurer who understands the legal profession’s specific challenges and can offer longer-term PII policies at competitive premium rates.

As the only endorsed finance provider to the Law Society of England and Wales and a Strategic Partner of the Law Society of Scotland, solicitors can be assured that Wesleyan Bank has the expertise and knowledge to support their practice.

Read: PII funding for Professional Practices

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