After 30 September 2022, the Solicitors Indemnity Fund (SIF) will no longer accept new claims. In order to protect yourself from possible future claims, you should understand what this means for your firm.

What happened

After both the SRA and SIF were assured that the extension was affordable, the Solicitors Regulation Authority (SRA) has confirmed its decision to extend SIF for a further 12 months.

In an attempt to find a more workable alternative to SIF, the SRA plans to conduct a consultation later this year. It is likely that the official consultation will begin in autumn and, ahead of that, the SRA is discussing options with wider stakeholders.

SIF explained

In England and Wales, solicitors were originally covered by SIF, which was a statutory fund.

Following the profession’s vote to move from its statutory fund system to purchasing PII on the open market, a portion of the SIF was retained to provide coverage to firms that had closed by that point. Later the fund was extended to include other closed firms once their mandatory six-year runoff cover had expired.

How the closure of SIF affects solicitors

For a law firm to be protected from any civil claims that may arise due to negligence after it closes, run-off coverage must be purchased. The run-off cover is included in the firm’s professional indemnity insurance (PII) and lasts for six years.

Supplementary run-off cover

The coverage provided by SIF after this six-year period is called supplementary run-off cover, and it is offered by indemnity, at no additional cost to the former principals of a closed firm. This cover will expire on 30 September 2022 for firms that have closed after 1 September 2000.

If no alternative arrangement is made, former principals of firms that closed since September 2000, their estates, and even individual employees, may be personally liable for any losses incurred.

Why it is necessary

Nearly 11% of claims are received after the mandatory runoff period has ended. The majority of late claims occur between six and fifteen years after a firm has closed.

There is a significantly increased risk for certain types of legal work after the six-year run-off period. These include, but are not limited to, conveyancing, wills and trusts, personal injury in Minors and matrimonial.

What should firms do

Depending on whether or when a practice where you were a principal or employee closed, SIF’s closure may impact you differently. Thus, there is no single solution that fits the whole profession and choosing what to do will involve taking into account your level of risk exposure.

Paying run-off premium

When closing a law firm in an orderly manner, solicitors have always been required to pay for their mandatory run-off coverage.

Even so, there is a significant minority of firms that close without finding a successor without paying the necessary amount. Because participating insurers are required to provide this cover regardless of whether firms pay for it or not, this has serious consequences for the industry. Therefore, the profession as a whole ends up paying higher premiums for their PII, and it strains the relationship between the Professional Insurers and the SRA.

For any firm seeking post-six-year runoff coverage (PSYROC), we anticipate that an orderly closure, along with payment of the run-off premium, will be essential in the future.

What should PSYROC include

Supplemental run-off cover is not required to meet the SRA’s minimum terms and conditions, so you may still be able to access less comprehensive coverage as long as it meets your needs.

In most cases, this coverage will be for a year, and its duration will depend on the type of work that your company is involved in.

If you add nine (or 10) more years to your six-year run-off period, most claims will be protected since you are beyond the 15-year secondary limitation period.

Nevertheless, some claims may still be valid over 15 years after the work was completed. This is especially true of claims involving residential properties, estates, trusts, and child personal injury.

There may be some low-risk areas of work that do not require additional coverage once the runoff period has ended. Tolerable risk should be determined by taking into account your liabilities.

Improve your chances of securing PSYROC

If you can demonstrate that you work in low risk areas and have a sound risk management system, you will have a better chance of obtaining ongoing coverage. Also being able to prove you have a good claims history and regulatory history is helpful.

It is advisable to request copies of your last three proposals from your former insurers if you do not have previous indemnity records and gather, as soon as possible, any pertinent papers that may still be available.

Here at Legal Ex Plus our team have vast experience in the field of business insurance and risk assessment. By applying our in-depth knowledge of professional services we are able to design innovative insurance programmes for each of our clients.

Don’t delay, call us today on 0800 180 4203 for expert advice and a free quote for cover tailored to your firm.

In a difficult professional indemnity market for solicitors, headlines in the legal and insurance press can be demoralizing, constantly reminding lawyers that we are experiencing the hardest market in recent years for this PI insurance.

In addition to the financial pressures from increased premiums, law firms are dealing with the practical, professional and financial effects of the global pandemic. However it is worth taking a broader perspective on the matter of renewals, namely that there remains a solid pool of A Rated insurers available for primary cover despite the insurance industry’s reduced appetite for new business.

These recent premium increases follow years of stable rates and it is not only solicitors PII that is on the rise, many other professions have also been experiencing significant hikes in premiums, along with reductions in the scope of coverage. Plus, in the past, insurance markets have been cyclical therefore it is reasonable to expect that the market will eventually stabilise with an expectation that rates will become more competitive wen capacity and appetite improves.

For most law firms the real question is what they should expect when their next insurance renewal rolls around and whether they should worry about not getting covered at all. It is important for firms to consult with their brokers before making a decision about their insurance coverage. Participating insurers will likely continue offering primary coverage to law firms they insure currently, provided their risk profile remains satisfactory.

For the upcoming October renewal, firms can expect rates to increase. Although, the figure will differ from one firm to another, depending on the rate requirements of each insurer, the areas of work undertaken, the history of claims, how the underwriter views the risk of future claims.

A firm should not depend on ‘averages’ estimated in the legal press, as that can lead to either under preparedness or over-stress. The best approach to renewal should be based on advice specifically tailored to the business’s needs and profile, then aligned with the broker.

Firms that have experienced a significant increase in conveyancing transactions due to the SDLT holiday, might find it useful to tackle this issue head-on in the documentation submitted to insurers at renewal. You should consider detailing any processes or procedures that were put in place to manage and respond to the increased workload and associated risks and explain why you do not expect the increased activity to result in additional claims for your firm.

Firms can also identify other concerns insurers have by reviewing the proposal form. The majority of questions on proposal forms and pandemic-related questionnaires are based on claims activity that insurers have experienced or anticipate. Taking the risk perspective into consideration, you should think about what actions you can take if you can’t answer the questions in a way that will reassure underwriters.

Despite the profession generally weathering the storm created by the pandemic better than expected from a financial perspective, insurers are equally mindful of the uncertain economic outlook and the high number of firms that will have to repay loans and meet deferred VAT. Over the past 12 months, insurers have consistently applied rigor to reviewing the financial statements of firms therefore it is imperative to explain how you are tackling any issues that don’t look good, with realistic plans and forecasts.

If you haven’t already, contact a broker today. You can discuss timeframes for submitting your proposal form in addition to what to expect in terms of premiums. You might be surprised at how detailed the documentation for renewal is, which can take a long time to gather. It would be a mistake to leave matters to the last minute this year as there may be a risk of missing out on available capacity.

How we can help

Legal Ex Plus was established to provide professionals with tailored insurance products with a difference that suit specific organisational requirements. By drawing on our vast experience and applying our in-depth knowledge of professional services, we are able to design innovative insurance programmes for each of our clients

Call us today for a free quote on 0800 180 4203