Professional indemnity insurance (PII) for solicitors has been described as disproportionately expensive, with firms facing high premiums compared to other professions, according to a report from CityAM.
Solicitors are required to have PII under Solicitors Regulation Authority (SRA) rules, but the cost of coverage has remained a significant financial burden, affecting firms’ operations and market competitiveness, the news outlet said.
An SRA report stated that the policies typically cost firms between 3% and 9% of annual turnover, with a median of 5%. A firm generating £1 million in revenue, for example, could expect to pay around £50,000 for coverage.
Meanwhile, a report by law firm CMS found that, since January 2020, 792 professional indemnity claims have been filed in the High Court, with 476 involving solicitors or legal firms. Despite the number of claims remaining stable, there has been an increase in cases brought by individuals representing themselves. These claims typically involve allegations of breach of contract, negligence, breach of fiduciary duty and breach of trust.
“Insurers continue to view solicitors as a more expensive risk and they continue to pay higher proportionate premiums than any other profession,” said Ed Anderson, a partner at Browne Jacobson.
The financial strain of PII has contributed to law firm closures, the news outlet report. According to accountancy firm Hazlewoods, 65 firms shut down in 2019 to 2020 due to difficulties in obtaining coverage. However, as premiums fell in October 2023, this number dropped to 34 in 2022 to 2023.
Despite an easing in premium costs, law firms still face regulatory pressures. Broker Howden reporting improving conditions for firms renewing their PII policies, citing increased insurer capacity and appetite for risk.
“There was increased capacity in the market for SRA-regulated solicitors’ PI insurance during 2023/2024, with three new insurers signing up to the participating insurers agreement and no departures among those who already signed up,” said Scarlett West, a partner in CMS’ insurance team.
Alongside rising insurance costs, the SRA has also intensified enforcement action. Nearly 11,000 complaints were made about law firms and solicitors in 2022 to 2023, similar with previous years, but there has been a marked increase in disciplinary measures. Law firm closures by the SRA rose to 65 from 25 in 2022 to 2023, and cases referred to the Solicitors Disciplinary Tribunal increased by 30%.
Will Glassey, a partner at Herbert Smith Freehills, noted growing regulatory scrutiny over economic crime and anti-money laundering measures. “In that area, the perception, politically, is that solicitors are a gateway to the UK’s economy, and that solicitors have a responsibility to prevent the legitimisation of unlawful economic activity,” he said.
The SRA has faced criticism over its handling of the Axiom Ince collapse, which resulted in over 1,000 job losses and criminal charges following the disappearance of approximately £60 million in client funds. The regulator is under pressure to increase oversight, particularly in financial compliance.
