Partner Article

Law firms urged: don’t cut corners on PII

Law firms in the north east are being urged to not cut corners when it comes to their Professional Indemnity Insurance (PII) policy renewal, with cheaper deals proving costly in the long-run and not providing the robust cover needed in the event of a civil liability claim.

Lee Rycraft, senior manager at Lloyds Bank Commercial Banking in the north east, said: “The search for new PII policies is a hot topic for discussion as the yearly deadline approaches, and put simply, if an offer seems too good to be true, the chances are that it is.

“It’s certainly my view that north east firms, increasingly, should spend sensibly and not cut corners when it comes to PII to ensure they can sleep more soundly at night, in the safe knowledge that their policy is watertight enough to withstand any eventuality.”

A survey conducted earlier this year by the Law Society analysed firms employing up to 25 practitioners, to uncover which risks are perceived to have the biggest impact on PII premiums.

The results show that almost a third of those surveyed feel that the increase in conveyancing is impacting most on the cost of PII. The responsibility to report to insurers about issues which could cause a claim arise ranks highly as a factor, with more than a quarter claiming this factor had the largest effect on their premium.

Lee added: “Other respondents hailed the increasing number of fee earners, complaints, and staff numbers among the most pertinent issues affecting PII. However, I was surprised to see that cyber-crime did not rank among them, and I believe that this outlook may be different in future editions of the report.

“Legal firms, including those in the north east, are increasingly falling victim to a number of different scams as fraudsters look to obtain not only clients’ information, but their money too. It’s because of this that insurance companies are now more likely than ever to demand documented proof that firms are taking rigorous steps to protect against this kind of criminal activity.

“Steps such as Cybersafe training or securing an ISO27001 quality mark can be effective measures to cover this eventuality, but clearly can incur a cost which can seem prohibitive to some practitioners.

“It can’t be stressed enough that this expenditure is preferable to the true cost of having any PII claim rendered invalid due to not having these measures in place. As well as the financial implications of an unsuccessful claim, there’s also a reputational issue, with a fraud loss involving a client almost certain to lead to the suspension of their account.

“The result, in this scenario, would inevitably be a demand for funds which many firms simply do not have. In the event that a firm survived such an occurrence, it’s likely that future premiums would be steep enough to effectively render the form non-viable.

“With this in mind, it’s heartening that the latest survey results show that the cost of a deal is deemed less important than ever before when it comes to taking out a policy, with just 29 per cent of respondents claiming it is their number one factor when making a decision, compared to 59 per cent in the previous year.”

This was posted in Bdaily's Members' News section by Lloyds Bank .