Professional indemnity: PI insurance – dos and don’ts

Marsh’s Sandra Neilson-Moore reflects on the process of applying for professional indemnity insurance, with some added thoughts on cyber liability

Professional indemnity (PI) insurance is a crucial component of the business risk management ‘toolkit’ of any law firm. In this country of course it is compulsory that a minimum amount of such insurance is purchased. This minimum amount is quite small (and may yet become smaller still), but the fact of the matter is that any sensible law firm/practising solicitor will want to purchase as much coverage, with as broad a scope of protection, as they can reasonably afford, and which they believe will meet their needs, and the needs and expectations of their clients.

They will also want to be as certain as they can be that the insurer(s) from whom they purchase this protection are financially stable and experienced in the business of providing PI insurance to solicitors, so that they can ensure (again as far as possible) that a claim, if one should come, will be met with a minimum of fuss and bother.

This is of course because the consequences of being uninsured can be fatal to your business and, since your business is perhaps the most significant asset you possess, it is an asset that you will want to protect to the greatest extent you can, within reason.

For the largest of the commercial firms, the renewal process represents a complex and lengthy interaction between themselves, their insurance brokers and the representatives of the insurance market with whom they are contracting. Such firms have large and complicated programmes of insurance, the building of which requires a substantial amount of effort, skill, expertise, knowledge and ability. The scope of coverage is of particular importance. Although the participating insurers who provide the qualifying insurance for the solicitors’ profession in England and Wales may believe that the minimum terms and conditions (MTC) are too broad and overly favour the insured, there are many ways in which the MTC should be improved and refined, in order to properly meet the needs of the larger firms. Only the most skilled and connected insurance brokers can make this happen.

Although smaller and less complicated firms have simpler needs and for that reason can often rely comfortably on the MTC, it is the reality in all cases that the decision regarding which insurer to deal with should not be one that is driven simply by the price of the product. To a greater or lesser extent, PI insurance is not a product; rather, it is (or should be) a set of protections that are appropriate to the firm’s needs, be they great or small, complex or straightforward.

Here are some things to remember when thinking about your PI insurance:

1. Do you understand the process, the market, the coverage and the alternatives well enough to DIY? If you don’t, if you are even the least bit unsure of your ability to get yourself the best and most appropriate coverage, find yourself a broker who you trust and whose credentials you respect.

2. The business you get from your broker or insurer should not be a big factor in your decision. These are ‘nice to haves’. What is most important is that your broker knows how to get you the best terms and that your insurer(s) will pay a valid claim without complaint. If you get £1m of business from the insurer, but they don’t pay your £20m claim, or you get £500k of business from your broker, but the programme they arrange for you costs £750k more than it should (or worse, doesn’t work as it should), that is a false (perhaps even a deadly) economy.

3. Present your firm’s credentials (good and bad) in a straightforward, positive manner. If the insurers know that you believe in yourselves, it is easier for them to believe in you also.

4. Stand back and look at your application for insurance from the insurers’ point of view. Is the information clear, accurate and easy to grasp? Are there contradictions? Or would you, as the underwriter, heave a great sigh and put it to the bottom of the pile for later?

5. Insurers want to know that you do not see your insurance as easy additional funding. Make sure the insurers believe that you understand and have learned from your mistakes.

6. Do not see this as a commodity. It is not. Give it the same time and attention you would give any crucial aspect of your business. Ask questions. Understand the process. You will have a better result as a consequence.

7. Get the best deal you can, but do not think the cheapest deal (broker or insurer) is the best one. If it sounds too good to be true, it probably is!