The average professional indemnity insurance (PII) premium is equivalent to 5% of a law firm’s annual turnover—but small firms pay more
Research commissioned by the Solicitors Regulation Authority (SRA) and Legal Services Board (LSB) found premiums typically ranged between 3% and 9% of annual turnover, with a 5% median.
However, the research identified that one in five of the 300 firms studied paid premiums worth 10% of turnover or even more. The vast majority (90%) of these firms paying 10% or more were small firms.
The researchers investigated the reasons for the difference. The key factor was practice area—the more property work a firm did, the higher their premium, with analysis suggesting such work attracts premiums of 8%–12% of turnover. In contrast, work on uncontested divorces was estimated to attract premiums of between 2%–7% of turnover.
Firms were also charged higher premiums where they had a history of regulatory findings, had a higher ratio of fee earners and qualified fee earners compared to turnover, or tended to hold more client money.
Other factors included the relative sophistication of the firm’s cyber and security arrangements, ability to absorb losses or recompense clients from other work, and the size of the overall premium paid as the higher the fee the more open the insurer to a bespoke arrangement.
Other factors included the relative sophistication of the firm’s cyber and security arrangements, ability to absorb losses or recompense clients from other work, and the size of the overall premium paid as the higher the fee the more open the insurer to a bespoke arrangement.
The SRA and LSB said their discussions with insurers indicated premiums are unlikely to fall in the near term. The research, ‘Econometric analysis of PII costs for legal services providers’, was published last week.
Separately, the Law Society has revised its practice note on PII. Law Society president Lubna Shuja said the note was ‘new and improved’, and would benefit the ‘almost 40% of solicitors’ firms [who] still renew their PII on the old common renewal date of 1 October’.
