If you’re already working in a solicitors’ firm, either as a trainee or newly qualified lawyer, you’ve probably had some indirect exposure to the professional indemnity insurance (PII) renewal process. You may, for instance, have been asked to fill in a form to state that you’re not aware of any client complaints against you. This also discloses that you don’t have any negligence timebombs languishing under your desk. Come policy renewal time, you may also have noticed that the ‘do not disturb’ sign is a permanent fixture on the senior partner’s door while he liaises with his broker and submits applications for quotes.
So what happens when you’re on the other side of that door? How does the owner of a startup law firm go about securing that firm’s very first PII policy? Here’s what you need to know…
Professional indemnity insurance: the what and why
PII protects you against civil claims from dissatisfied clients. If it’s deemed that you have failed to meet the standards of a reasonably competent solicitor in the advice you have given, or the work you have carried out on behalf of a client, and if that client has suffered loss as a result, you will be held liable for those losses. So, in the event of a successful claim against you, the PII insurer picks up the tab.
But PII isn’t just about having someone there to pay the bill if things go drastically wrong. In terms of clients, the legal profession certainly isn’t immune to serial complainers and outright chancers — not to mention clients who assume automatically that if things don’t go their way, it must be your fault. These are the individuals who might be inclined to pursue a claim against your firm, regardless of its merits. Part of the job of your insurers and their representatives involves responding to these claims and (hopefully) making them go away.
When should you start thinking about PII?
Unlike some professions where PII is merely a useful thing to have, for solicitors it’s an absolute requirement. You need to have coverage in place at all times, and you will need to demonstrate to The Solicitors Regulation Authority (SRA) that you have a policy of insurance as part of the annual process for renewing your practice certificate.
A niche market
Unlike many other forms of insurance, PII is a niche market and, especially for a startup, finding the right policy takes time. This means if you are thinking about setting up your own firm, assessing the insurance market should be one of the top priorities on your to-do list — way ahead of shopping around for office space or ordering stationery.
Also, remember that although you only need cover from the date your new firm commences practicing, when you apply to the SRA to set up your practice, you will need to give evidence of a valid quotation for PII coverage.
How to find solicitors’ PII insurance for new firms
Who are the insurers?
Primary cover must be from one of the providers included on the SRA’s list of participating insurers, which you can view here. Do not assume that each and every one of the insurers on this list will be in a position to provide you with cover, or that the terms offered will be appropriate for your needs. A ‘participating insurer’ is one that has agreed to abide by the SRA’s rules regarding such matters as minimum levels of cover; not one that has been specifically recommended by the SRA.
How much cover will I need?
Sole practitioners and partnerships (i.e. the majority of start-ups) require a minimum of £2 million for each individual case. For limited companies, LLPs and ‘alternative business structures’, a case requires a minimum of £3 million. Bear in mind though that this refers just to the minimum, or ‘primary’ level of coverage.
You are also under a duty to consider the specific risks and levels of exposure that face your firm to determine whether you also require top-up (secondary) cover. Areas that this is likely to apply include very high-value litigation and property work.
Instructing a broker
Especially if you intend to specialise in a perceived high-risk area such as personal injury or high-value commercial litigation, probate or property, your PII premium is likely to represent a sizeable chunk of your fee income. As such, instruct a broker before completing your business plan to avoid a fatal underestimate of your likely outgoings. After a detailed view of the market, you may end up deciding which practice area to focus on.
With this being a highly specialist and restricted area of insurance, the availability of suitable policies can fluctuate frequently as companies enter or decide to leave the market. A broker is generally best to pinpoint the appropriate policies available at any particular time. He should also be able to provide you with invaluable assistance in completing applications for quotes.
How to maximise the chances of getting cover
- Consider getting a partner on board. The SRA states that you must have at least 36 months post-qualification experience under your belt before you can start a firm — although even here, an insurer is still likely to consider you as rather ‘green’, and therefore high risk. A partner with more experience could reduce your firm’s risk profile substantially.
- Boost your formal credentials. This could include applying for Law Society accreditation and/or membership of special interest practice groups. You may even want to consider investing in management training over and above the 12 hours minimum required by the SRA for setting up a firm.
- Showcase your past experience. Newcomers are untested when it comes to taking sole responsibility for a caseload. It’s this that makes them high risk in the eyes of insurers. When you’re applying for quotes, prepare to stress the managerial experience you’ve notched up to date. This includes the size and complexity of your caseload. As well as outcomes you’ve achieved, the responsibilities you’ve taken on for supervising other members of staff, and your familiarity with case management software and general best practice.
Once your firm is up and running, you should get into the habit of planning for renewal at least 4-6 months before the expiry of the policy. Even if you’ve done nothing wrong, you could face a situation where your existing insurer decides to pull out of the market. There’s some leeway here. An existing insurer must provide an extended indemnity period (EIP) of 30 days from the expiry of the policy to customers whose’ policies have expired. As well as who are yet to secure replacement cover. However, you don’t want to find yourself faced with a last-minute scramble for cover.
Company formation is simple when you have the right advice to begin with. Browse the help centre for general guidance on business plans and presenting your proposed business in the best possible light, or check out our company formation guides if you want to get down to the details of how to form a company.