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With only a matter of days before the expiry of existing solicitors professional indemnity insurance policies, German insurer, Berliner Versicherung has dropped a bombshell on the Solicitors Professional Indemnity insurance market by its withdrawal, potentially leaving 1,300 or more solicitors without cover. Berliner, a newcomer to the market captured a significant percentage of the UK solicitors market following the collapse of Balva in June 2013.

Why is this important?

Professional indemnity is a compulsory requirement for practicing solicitors. The SRA has written to solicitors confirming that arrangement of insurance by October 1st is the most important matter facing them.

Is cover available elsewhere?

Current solicitors professional indemnity insurance policies have a common renewal date for all policies of 1 October 2013. This late withdrawal means that insurers will be flooded with enquiries and some may not be dealt with before the renewal date.

Solicitors Professional Indemnity is only available from a small number of ‘qualifying insurers’ who have agreed to meet certain criteria laid down by the Solicitors Regulation Authority (SRA). The ‘qualifying insurers’ are a mixture of rated international insurers and unrated insurers.

What is a rated insurer?

The term ‘rated’ reflects the fact a rating agency has given an assessment of the financial security of the insurer and its ability to pay claims now and in the future. An unrated has not had a rating from a rating agency. Whilst a rating is seen as a good indicator of an insurer’s financial security and ability to pay claims, it is not a guarantee.

Who is Berliner Versicherung?

Berliner is an unrated German based insurer. It is new entrant into the Solicitors Professional Indemnity market this year, primarily taking over the book of business of insolvent LaTVian insurer Balva, but also taking on some additional business.

Am I still insured under my Berliner policy?

The position on this is unclear at present but current information suggests that the insurer will not be accepting any renewal business on the 1 October 2013.

Despite orders for business being given and premiums paid, cover is not being offered beyond 30 September 2013. Some policies was placed with Berliner earlier this year, and the position with these policies is also uncertain.

Insurance with Berliner was placed exclusively through one intermediary. This intermediary has written to its clients advising them of the uncertainty of cover and suggesting alternative arrangements are made.

What should I do now if I am currently insured by Berliner?

What not to do is panic.

Alternative cover needs to sourced, but this needs to be done in a structured and considered way.

Insurers do not like seeing multiple enquiries for professional indemnity insurance from the same solicitor, especially in the current circumstances. Taking a blunderbuss approach to the market could have very negative consequences for your renewal and the competitiveness of any terms that you may receive.

With a long track record in the arrangement of professional indemnity insurance and along with other specialist brokers are well placed to advise and assist you with the 2013 renewal. In view of the short time frame we suggest you call us first rather than simply sending in your proposal forms to discuss how we may best help you in the time allowed.  Call us on 161 300 2930 or if you would like to speak to us directly out of hours please call Steve Lewis on 07885 412227.

What effect will the withdrawal of Berliner have upon renewal premiums?

Again, the position is unclear. Some insurers may look to take advantage of the situation and hike premiums but competition, if there is any, will limit the effects of any opportunism.

Should I use an unrated insurer for solicitors professional indemnity insurance?

This is not a new question; it is an issue that has been the subject of considerable discussion for some time and the recent events involving firstly Quinn, Lemma, Balva and then Berliner will only serve to further fuel that debate.

The issue that faces solicitors, particularly smaller firms is that some of the unrated insurers have been offering considerably more attractive terms than rated alternatives and whilst cost is always an important factor to any business it has perhaps been even more significant in the last three years.

Rather than simply focussing on rated vs unrated alone, we should also consider the longevity in the market and the experience of an underwriter in the solicitors indemnity market. It is clear to some that the entering an insurance market that attracts relatively high premiums and does not suffer long tail claims maybe attractive from a speculative point of view rather than driven by a desire to build and maintain a long term profitable underwriting account.

Whilst insurers may be insulated against long tail claims insofar as notifications made after the policy term has expired, it is very important to consider that whilst claim may be reported during the term of a policy the insurer must still have the financial assets to meet the costs of such claims at the time when settlement occurs, which could of course be years after the policy has expired.