The professional indemnity (PI) insurance space continues to face pressures from hard markets and changing risk exposures. Brokers consulted by Insurance Business have reported further reductions in capacity and, last year, premiums increasing by about 20%.
Swiss Re’s Corporate Solutions team argues that growing demands on lawyers – including more complex mergers and acquisitions, rapidly developing case law, cyber threats, fintech and crypto issues – have created a knowledge gap in this market.
“Many law firms have viewed PI insurance as a commodity purchase. In doing so, they fail to engage the right insurer who understands their business, how they manage risk and most importantly, make a long-term commitment to their firm,” said Jeremy Scott-Mackenzie (pictured), Swiss Re’s head of casualty and FinPro ANZ.
He argues that Swiss Re’s professional indemnity insurance for Lawyers can fill this knowledge gap in Australia. The product is aimed at corporate law firms. Swiss Re, the global, Zurich based insurance company claims to be the largest reinsurer in the world.
Scott-Mackenzie said complaints and litigation against Australian lawyers are at “heightened levels” and these days, the quantums sought often exceed $100 million.
“One significant impact is social inflation, in which society has heightened the expectations on professionals and corporates and a resultant shift in the exposures where the lawyer is viewed to have not met this heightened expectation,” he said.
In a profession accustomed to giving advice, how willingly do lawyers take advice from an insurance company like Swiss Re concerning the legal threats to themselves?
“Most of the firms we are engaging with have a good understanding of the risk that they take on when engaging with a new client or in providing a particular type of advice,” said Scott-Mackenzie diplomatically.
He said insurance data from the claims area points to legal tasks that have a higher likelihood of a claim, including conveyancing and corporate advisory work.
“More sophisticated law firms work with their insurers to understand these trends and then adjust their risk management framework,” said Scott-Mackenzie.
Rather than a "one size fits all" approach, he said certain legal engagements can be given a heightened risk management approach. This can include additional approvals and additional reviews of the advice that is provided.
Scott-Mackenzie said the PI insurance claims against lawyers typically fall into two categories.
“One is the traditional failure to advise or providing incorrect advice, whilst the second is the often-overlooked administrative error,” he said.
Scott-Mackenzie said it’s not usually errors in the legal advice that are at issue.
“Whilst the focus is often upon the quality of the advice provided, we would regard that lawyers are less prone to erroneous advice – albeit we still see it occur! Far more often, it is failing to identify critical documents or failing to advise in respect of such documents that confer benefits to their clients that can be devastating,” he explained.
Accuracy and timeliness are “two of the most pressing issues for lawyers,” he said.
“Contracts often stipulate deadlines and are inflexible and so missing a deadline by even one day may mean that a transaction fails or that a significant penalty is payable by the lawyer's client,” he said.
The lawyer’s clients then look to the lawyer to meet these payments, he said.
Scott-Mackenzie said one thing lawyers seeking PI cover need is a solid relationship with their insurer. This is partly because PI claims typically take a long time to negotiate and settle.
“Building a stable partnership offers the insured a level of comfort in knowing their insurer understands them and will support them during the turmoil that a professional indemnity claim can often bring,” he said.
He also said the insurer needs to have underwriters and claims experts that include lawyers based in Australia with experience and knowledge in this insurance space and the current issues facing law firms.
The insurer, he said, needs to provide quality advice both before and during a claim.
According to a recent report by global insurance specialist law firm Clyde & Co, 2022 is a challenging year for purchasers of professional indemnity insurance.
“Appetite to grow the book for accountants, management consultants, insurance brokers and financial advisers is particularly weak with 95% of insurers expecting to see more PI claims and over two thirds (67%) expecting them to be more severe in 2022,” said the report from the London headquartered firm.
