Solicitors are one of the earliest established professions. They encompass a huge variety of firms across the UK. The range of practices is diverse in terms of size and activity, from the largest practice, Clifford Chance with 360 partners and a fee income of £585m to the sole practitioner with an income of less than £50,000.
The profession, however, has been under challenge for some time from a variety of organisations. Banks offer advisory and administrative services in connection with wills and trusts. Licensed conveyancers have been a feature of the professional landscape for some years and loss adjusters, who have traditionally provided investigative and claims handling services have now been joined by claims advisory services, targeting those suffering personal injury.
The profession is governed and represented by the Law Society of England and Wales. The position in Scotland and N. Ireland differs from that of the rest of the United Kingdom in that firms in these two territories have different governing bodies, the Scottish Law Society and the Law Society of Northern Ireland and therefore different professional indemnity arrangements. This guide to the Solicitors profession concerns itself with firms in private practice in England and Wales.
In 1975, the Law Society established a compulsory professional indemnity scheme. It became a condition of the right to practice that the Solicitor was insured under the scheme which until 1987 was underwritten in the insurance market. Then, in the face of a hardening market and the prospect of considerable reductions in capacity, the Solicitors Indemnity Fund (SIF) came into being. The fund afforded indemnity to all solicitors in private practice in England and Wales.
Between 1999 and 2000 the Law Society, under considerable pressure, decided to put the SIF into run-off and give the profession some freedom of choice concerning PI arrangements. The decision to scrap the SIF followed criticisms that they had failed properly to estimate the volume and size of claims and failed to control costs.
Many practices relished the prospect of obtaining cover at less cost in the soft insurance market then prevailing. The majority of firms were not disappointed and were able to obtain considerable reductions in price, albeit in the short term.
Aggregate premium income for the 2000-2001 year was considerably less than the aggregate contributions paid to the SIF in the previous year. Although cover remains compulsory and the level of cover must comply with minimum terms and conditions the benefits to some firms of freedom of choice in the commercial market had a quid pro quo in that insurers had the freedom to refuse to insure.
The new arrangements came into force from 1st September 2000 but the profession had three choices. Practices were able to insure with a managing general agency (MGA) later named Solicitors Professional Indemnity Limited (SPIL), owned 51% by the Law Society and 49% by a commercial insurer (St Paul). Alternatively, a practice was able to look for commercial insurers (Lloyd's and companies) that had been approved to underwrite this class of business. Thirdly, those practices that could not obtain cover were required to enter an assigned risk pool which provided them with cover, at a considerably higher price.
What do Insurers look for?
With most professions insurers pay attention to qualifications but qualification is a prerequisite of practice in Law. Historically, the starting point for determining price is the size of the gross fee income of the firm. In turn the number of partners and fee income generated from different types of work is of particular interest to insurers in order that a rate can be applied.
High risk categories
- Residential Conveyancing
- Commercial Conveyancing>
- Personal Injury
- Litigation
Medium risk categories
- Trust and Probate
- Commercial Work
- Financial
- Landlord and Tenant
- Matrimonial
Low risk categories
- Criminal Law
- Employment Work
- Children's Work
- Debt Collection
There are many other factors that insurers must consider:
- Size of practices by number of partners - A study of losses year on year since 1991 indicates that approximately 50% of all payments made are derived from the 1-4 partner practice. Further to this the 2-4 partner practice sector caused 70% of all dishonesty losses.
- Undertaking unfamiliar work - Well established practices that carry out the majority of their work in one sector demonstrate an 'expertise', indicating a good risk. However, the opposite may be the case where that firm 'dabbles' in other areas where perhaps they have little or no experience. For example a practice that carries out 99% personal injury and 1% commercial conveyancing.
- Geographical location - Statistics clearly demonstrate that location has played a part in the claims experience of a practice.
- Conveyancing transaction number and values - There is a direct relationship between the size and complexity of the transaction and the exposure and volume of transactions carried out.
- Overseas exposure - Does the practice carry out work for overseas clients? Careful consideration would be paid to such work carried out for US or Canadian firms.
- Retroactive exposure - Does the practice have an exposure to claims arising from past work, whether in the current firm or a former practice?
