After the turbulent times in the solicitors' professional indemnity ("PI") market in the years following the economic crash in 2008, the relative stability in the market in recent years has been welcomed by insurers and solicitors alike, however, recent developments have suggested that things may be about to change.
Nobody who was around at the time needs reminding of the post-2008 insurance climate for professionals and solicitors in particular. Following the SMDF's exit, with roughly a two-thirds market share, a number of insurers entered and then hastily retreated from the solicitors' PI market following unprecedented levels of claims, both in terms of frequency and severity. Eventually, the market settled as the claims subsided and the insurers' respective market shares and premium remained relatively stable over the last number of years. As a result, PI insurance market conditions for solicitors have shown little change over recent times, either for sole practitioners or the "Big 6" firms and plentiful market capacity has kept down prices for the majority of firms.
Changed Times in the UK?
The 2018 renewal season in the English market offered the first insight to a potential shift in the current dynamic. Last month, the solicitors' market in England was hit by the withdrawal of elite provider Libra Managers, as Lloyd’s of London reviewed its appetite for risk following hefty losses. Brokers in England are reporting that the insurers that remain have adopted a more cautious approach to pricing. A reduced excess layer capacity is also an issue. In short, the PI market in England appears to be hardening for the first time in years. However, it should be noted that the English solicitors' market is more likely to be affected by the catastrophic losses in the wider insurance market (for example, hurricanes, earthquakes and fires in North America) rather than by negligence claims against solicitors.
What are the implications for Ireland?
Whilst it is too early to say who will be offering PI insurance to Irish solicitors for the upcoming renewal on 1 December 2018, it is clear that at least two of this year's participating insurers will not continue in 2018/19 indemnity period. Former market-lead, AmTrust International Underwriters DAC recently announced their withdrawal as a solicitors' PI insurer in Ireland and an administrator was appointed to CBL Insurance Europe DAC on 12 March 2018 by the High Court on application by the Central Bank of Ireland. Any firm covered by these two insurers will need to seek an alternative insurer for the 2018/2019 PI renewal. This follows on the heels of Elite Insurance Company Limited ceasing to write new business in May 2017.
Insurance is very much a cyclical business and after years of a soft market with plenty of capacity, the tide may be turning towards a harder market for insurers and professionals. What the recent English experience has taught us is that while there is a hardening of attitudes among professional indemnity insurers, there remains plenty of capacity from both insurers and Lloyd’s syndicates. The level of difficulty a solicitor in England has in renewing their professional indemnity is largely determined by their claims experience – with a broadly similar approach in Ireland.
Conveyancing & Cyber
Since the financial crash, firms that handle a significant level of conveyancing work have found it more challenging than other practices, as a number of insurers avoid providing professional indemnity to firms that derive more than 25% of their revenues from conveyancing. In both England and Ireland, property-related claims continue to dominate, both in number and by value, especially from commercial real estate work, which has been on the rise here with a booming Irish economy.
Technology also is a growing cause of potential claims. The word 'cyber' encompasses many different risks that law firms face, from information security breaches, especially following GDPR, to sophisticated frauds resulting in payments of money to wrong parties.
Professional indemnity insurers are still coming to grips with cyber claims. We have yet to see the same frequency and severity of cyber claims in Ireland compared to the UK but given the increasing technology-led work practices, cyber claims are only likely to increase.
For the upcoming renewal in solicitors' PI in Ireland, we will have to wait and see whether the recent developments in the UK will be repeated here – history would suggest that this is more likely than not. It will be interesting to determine the market's attitude to risks, both traditional and emerging and after years of stability, whether a hardening of the market may finally be upon us.