Kate Burt, Legl’s Head of Risk and Compliance, recently co-hosted a webinar with Colin Taylor, Director at Howden Insurance Brokers Ltd. The webinar topic covered the PII process and market conditions, and Colin gave his valuable and practical insights into the risk management issues facing law firms today.
In Key PII and Risk Management Issues Facing Law Firms, you can find out more about what’s happening in the PII renewal market today, how to increase the chance of more favourable terms at your next PII renewal, and what law firms can expect in the future.
What’s happening in the PII market?
Every firm will be aware of the hard market conditions currently being experienced in the PII sector. This was brought on by insurers’ deteriorating claims positions endured over a number of years. Despite the difficulties, most firms are weathering the storm, as Colin Taylor confirmed in the webinar.
It is fair to say that insurers in the market continue to adopt a cautious approach – with most applying a threshold for the amount of conveyancing work undertaken as a percentage of overall fees, given the higher risk profile attached to this work.
With PII being one of the biggest overheads for a firm and securing terms essential to a firm’s business continuity, getting this element right is crucial.
According to Howden Solicitors Market Report, in this current economic climate, there is more likelihood of firms failing and falling into insolvency.Insurers are understandably concerned about their potential exposure to claims; leading to cover price increases to match their potential exposure.
Howden notes the following PII hotspots in the market:
Conveyancing remains the biggest claim spend, and as Howden reports, “Historic claims history tells insurers that when the property market or wider economy falters, then claims against solicitors increase”.
In the webinar, Colin Taylor comments that, “There is certainly less competition for firms involved in conveyancing than other areas of practice”.
What your firm should do:
Have robust controls around your policies, controls, and procedures, and be able to evidence these to your insurer as part of the renewal process.
Claims arising out of failed buyer-funded developments are a particular issue of concern and substantial payments have been made by insurers in response to some of these matters. Insurers are concerned about the potential for an increase in claims in this area.
Kate Burt advises that whether firms are already acting on these matters, or are planning to, they should ensure they are aware of the risks involved, and liaise closely with their broker on their approach to avoid unpleasant surprises at renewal. There is a section on this on most proposal forms.
Stamp Duty Holiday
Although it was very well publicised at the time, there is concern in the industry that we haven’t yet seen the full effects of the SDLT holiday on claims. The increased amount of work has prompted underwriters’ concern about the potential risk of claims arising due to errors or omissions by fee earners who were working under pressure to deal with increased volume of transactions. The pandemic and isolation of fee earners at home has accelerated underwriters’ concerns in this area.
The 2022 SRA Workplace Culture Thematic Review states, “We expect firms to create and maintain the right culture and environment for the delivery of competent and ethical legal services to clients with effective systems, supervision arrangements, processes and controls in place. This includes taking steps to run businesses in a way that supports wellbeing by minimising the risk of working practices and workplace behaviours leading to poor mental health. A failure to put in place systems that protect employees may lead to an increased risk of breaching our regulatory requirements”.
What your firm should do:
If your firm actively manages workload to alleviate pressures, they should showcase this in the renewal form. PII insurers are interested to know your law firms’ arrangements to ensure the health and wellbeing of your fee earners.
In the webinar, Kate and Colin discussed the impact on PII of cyber-related issues. Recent high-profile ransom attacks in the legal services industry such as a top criminal law firm fined £98k for cyber security “negligence” have also highlighted the level of risk. Questions about the management of systems, controls, and training that are in place to address cyber risks continue to be asked by underwriters.
In the webinar, Colin Taylor expressed that, “Exposure to ransomware attacks continues to cause firms’ concern. The wider use of technology has greatly assisted firms to get through Covid’s lockdown measures, but it is important that firms’ cyber security is robust enough to prevent attacks accessing client data. PII insurers want to know more about firms’ security measures and what specific training is given to staff – as this is often a hacker’s way into a firm”.
Howden confirm in their latest guide that cyber security insurers will want to confirm the following as a minimum to consider insuring:
- The use of multi-factor authentication for cloud-based services and for all remote access to your network.
- No remote access into your environment without a virtual private network.
- Annual cyber security awareness training provided to all individuals who have access to your firm’s network or confidential/personal data.
- A segmented backup solution, including regular backups of critical information, and proven tests that these backups are recoverable.
Risk management initiatives
There is an expectation that firms should have processes and procedures in place to comply with professional regulations and to ensure the management of risk.
In the webinar, Colin Taylor advised, “Making good use of technology like Legl can improve the risk profile of a firm, and from my experience, PII underwriters recognise this. Although promises of automatic discounted PII on the basis of specific tech adoption should be treated with some degree of scepticism, there is no doubt that it can help in an insurer’s overall assessment of risk and the premium they may charge, particularly if the benefits are demonstrated well as part of the proposal”. To hear more on Colin and Kate’s discussion on this topic, watch the on-demand webinar.
Some questions to consider in relation to your firm’s risk management initiatives include:
- Does your firm have a standardised approach to risk management?
- Is there a good understanding of risk management across your firm?
- Could technology make your risk processes more robust by providing clear audit trails and demonstrating proactive risk management?
PII insurers were quick to react with queries when Russia invaded Ukraine, and it’s likely that underwriters will be interested in this risk for the foreseeable future. PII insurers will undoubtedly keep a close eye on firms exposed in this area.
What your firm can do:
Kate Burt advises that firms should keep their profile of work and their clients under review and expect thorough questioning at renewal time.
How Legl can help you manage your risk
Howden notes in their recent report that professional negligence claims are “Rarely the result of a lawyer getting the law wrong. It is usually procedural issues or shortcomings that lead to claims”.
Let’s look at a scenario where legal professionals could be liable due to inefficient processes to see how Legl can help manage your risk:
What is the risk to your PII if you get onboarding wrong?
Failing to undertake correct due diligence processes during onboarding leaves a firm wide open to compliance risk. Law firms must inherently know who their clients are, the complete structure of business clients and their beneficial owners – and be able to place their hands on this information easily.
As a browser-based and intuitive platform, Legl is convenient for all staff to add file notes and quickly access important CDD and KYC information. Legl makes it simple for firms to create a culture of record keeping with transparent audit trails.
Comprehensive reports on business clients collate all necessary information all in one place – from key financials, to profit and loss, to group structure and much more.
Mitigate the compliance risks associated with being paper-heavy by moving forward with a digital solution – and build a complete risk profile of your client base to prove to your insurer that your firm is compliant.
What’s the future of PII looking like?
According to Howden, there are signs of a “flattening of the curve”, with a softening of the increase in the average rate of premiums. This trend is expected to continue for October 2022 renewals, provided the position is not adversely affected by the property market or the wider economy.
Howden’s July market report provides valuable intelligence to help firms through their renewal, and will report in the new year 2023 on the outcome of the October renewals for those firms renewing in April 2023. If you have any questions and/or concerns please do not hesitate to contact them.
Not only can Legl help streamline your firm’s back office functions for smoother day-to-day business operations, you’ll also benefit from increased compliance.
When it’s time for PII renewal, you’ll be best placed to present your case as a low-risk firm to insure.