The International Underwriting Association of London (IUA) has issued a warning to solicitors, in the form of an open letter, that professional indemnity insurance (PII) cover for them could become unsustainable if underwriters are not allowed to cancel policies where the premium is not paid.
The IUA represents international and wholesale insurance and reinsurance companies operating in or through London and exists to promote and enhance the business environment for its members.
The association has discussed the minimum terms and conditions of such policies with the Solicitors Regulation Authority (SRA) and has now set out its concerns in an open letter to the legal industry. It calls for a right to cancel cover if premiums are not met, particularly for run-off cover, and the payment of excesses on a policy to be mandatory. In the letter it states:
The lack of cancellation rights for non-payment of premium or excesses in the MTCs (Minimum Terms and Conditions) has long been a concern for Insurers. However, it is clear that this will shortly become significantly more problematic due to the deteriorating economic environment. To pre-empt potential disruption and manage this concern we approached the SRA to propose the following changes to the MTCs:
- Allowing the policy to be cancellable in the event of non-payment of premium;
- Allowing the payment of run-off premium to be compulsory for such cover to incept;
- Allowing the payment of excesses to be made mandatory and, where not complied with, the ability to off-set excesses against claims payments.
The IUA have said that without such measures it is likely that insurers will become more selective in the risks they accept. This could mean, for example, that smaller conveyancing firms that generate lower premiums, in particular, could face a restricted choice and higher costs for professional indemnity cover.
Chris Jones, director of legal and market services, at the IUA, said:
“Many solicitor firms are facing economic pressures and we have already seen an increase in requests for payment of premiums by instalments.
“Insurers have shown their willingness to work with other professions that are struggling to mitigate the short-term economic effects of Covid-19, but the complete lack of any protection around payment of premium and excesses makes it far more difficult to do this for solicitors.
“It is not proposed that there should be any change in the scope of insurance offered. Our objective is to better manage policies to ensure that solicitors pay for the cover that is being provided to them. This will benefit the market by providing long term confidence in the availability of cover and giving insurers more flexibility to develop bespoke arrangements for their clients.”
The IUA have pointed out that the credit risk posed for insurers by a lack of cancellation rights for non-payment of premium combined with the provision of a compulsory 6 years of run-off cover for nil premium, is not seen in any other regulated profession. They take the view that the current rules are contrary to established contract and insurance law principles and are not required by the Financial Conduct Authority or any other regulators with an enhanced consumer protection focus.
The SRA is attempting to mitigate the issue in the short term, for example by reviewing its supervision and enforcement processes. Whilst these efforts have been welcomed by the IUA welcome they have said that they will not fundamentally address the core concerns of insurers and are unlikely to have an impact on the forthcoming renewals season in October and beyond.
The full text of the IUA letter can be found via the IUA website