28 August 2009

Number of law firms seeking help with financing Professional Indemnity Insurance on the rise.

Law firms face higher premiums in a single lump-sum payment on October 1 deadline.

It has been widely forecast that the Professional Indemnity (PI) premiums paid by smaller law firms will increase substantially this year, pushed up by the rising tide of professional negligence claims following the credit crunch. According to the City law firm Reynolds Porter Chamberlain 80 professional negligence cases were heard against lawyers in the High Court in 2008, up from 31 in 2007.

Syscap explains that previous property crashes have led to an increase in professional negligence claims relating to conveyancing work. As smaller firms undertake a disproportionately high level of conveyancing work they face some of the biggest hikes to their insurance premiums.

Mark Gidge, Chief Sales Officer, at Syscap comments: “We always get a lot of requests for short term funding at this time of year as professional indemnity insurance premiums can take a real bite out of a firm’s cash reserves.”

“This year we have noticed a marked increase in larger firms asking for this finance as well as a general increase in the number of requests we have received.”

Mark Gidge adds: “Obviously the much publicised fall in law firm revenues and the collapse of Key Business Finance, a one time major lender to law firms, has exacerbated the problem.”

Syscap says that another unique factor that law firms face this year is the reluctance by insurers to offer payment holidays before the law firms have to pay their PI premiums.

Says Mark Gidge: “We have heard rumblings that too many law firms used this payment holiday to shop around and find a cheaper PI deal with a rival insurer. We don’t know whether that is the real driver for the suggested withdrawal of these payment holidays or whether it is just that insurers want to speed up their cash collection.”

Mark Gidge says that those law firms that are paying larger PI premiums this year will find the removal of credit by insurers a particular strain as they will also have just paid £1,180 for each of their solicitor’s annual practising certificates in September a 20% jump from last year’s £995.

See coverage of this press release below:

Law Society Gazette