2024 Solicitors' Professional Indemnity Renewal Outlook

There are two milestone dates in the calendar year for professional indemnity insurance (PII), April 1st and October 1st. It is estimated that over 90% of law firms renew during this time.

As of last year, insurance costs accounted for a lower percentage of firms' revenue, which was a welcome development. This improvement can be attributed to the entry of new insurers as well as the increased interest of established insurers.

In spite of this, not all firms experienced rate reductions (insurance costs as a percentage of revenue). In addition, reduced exposure to property work led to rate reductions.

Most insurers reported retention rates exceeding 90% as a result of this improved costing environment.

With new entrants entering the market and existing insurers maintaining their appetites - and having to meet topline premium targets - optimism continues to grow for 2024. The signs therefore are promising and it is expected that SRA-regulated firms will have more choice throughout this year.

The risk landscape in 2024 is not without its concerns, though, and some in the insurance community are concerned.

Insurers remain concerned about the impact of higher interest rates last year, especially as many mortgagees are set to exit fixed rate mortgages soon. Repossessions of property, collapses of property developments, and more company administrations could result from this, all of which could trigger negligence claims against law firms.

Higher interest rates are expected to stimulate more new capacity, according to a more optimistic perspective. It can take three to four years for negligence claims to be settled, sometimes longer, so insurers can invest the premiums they generate before paying out claims for some time.

Solicitors' PII market is large, with an estimated primary premium of £350 million, and two main renewal windows that offer an opportunity to collect premiums quickly, so entering the market becomes more worthwhile with higher interest rates.

Insurers are also concerned about the cost-of-living crisis given the growing litigious environment. Even spurious claims produce administrative and defence costs in a less buoyant economic environment.

Inflation in the claims market is also a result of broader economic inflation. Factors such as asset values and costs will rise as a claim's value increases, thereby affecting premiums.

As insurers shift their focus, they will likely focus on:

• The health of a practice's finances - last year's high-profile thefts from client accounts raised concern that this type of loss might increase.
• An increased awareness of financial mis-selling and the relationship between firms and funding
• AML and identity checks in response to a rise in vendor fraud;
• Overseas entity register;
• A resurgence of buyer-funded developments.

In summary, there are many reasons for firms to have confidence in an improved PII renewal outcome, particularly as it seems the time of increasing rates and limited options is now firmly in the rear view mirror.

The concerns of insurers must be addressed and firms must manage them accordingly, but as long as the claims environment does not deteriorate, the outlook for the profession will remain positive.

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