Thursday 31 January 2013

Risky Insurers?

Feather the nest to protect the vulnerable?
The Law Society has decided to warn solicitors that they need to check the financial strength of their insurers. Just because they are on the list of qualifying insurers, it doesn't mean that they have passed any financial stability tests.
They have produced a whole new guide to insurer insolvency which you can find here.

Just as with motor insurance, I anticipate that most solicitors regard insurance as an obligation that must be paid for. The idea of actually claiming on it is usually far from our minds. Indeed that's exactly what the insurers want as they exhort us to put in place risk reducing measures and raise the premiums of those with the temerity to claim.

One thing the Law Society press release is silent on is the benefit of inserting limitations of liability into terms of trade. Instead they publish further guidance on top-up and excess layer cover. I begin to wonder if they get commission from these spiralling insurance sales.

Surely the credibility of the *ratings* industry no longer exists in the realms of ordinary men after all those highly rated junk mortgage securities (Remember Northern Rock anyone?). Even so the SRA require that Insurers must now disclose whether or not they have a financial security rating and the provider of this rating. Here is their handy list. Only one firm, Travelers is prepared to deal direct and they even quote their minimum premium, £1,575 though that was last year.

For all the dire warnings, read the full press release.


  1. The Law Society note can be summarised as: don't blame us if the insurer goes bust. That is its only purpose and therefore I think it is not surprising that there is no mention of limiting liability.

    Personally, I get some comfort from the rating of our insurer, Hannover.

    The insurance market is in a mess. Two years ago, we lost patience with the excessive annual price hikes of our longstanding insurer, Zurich (subliminal message: we don't want the business of sole practitioners), and went to Hannover, saving £10,000.

  2. I would expect a body like the Law Society who I help to support financially to perform a service for law firms. it should take the time to do research into these insurers so that only insurers who are financially sound appear on its approved list. As a business owner I have many calls on my time, and looking into whether an insurer is financially sound or not is not good use of my time.

  3. Shireen, my guess is that if they did assume that responsibility, they would rely on the independent ratings (which Barbara considers not to have credibility) to determine financial soundness. The effect of this would probably be to reduce the pool of insurers and thereby reduce competition. It was difficult enough finding insurers for sole practitioners 2 years ago and I seem to recall that one of the main ones at that time did not have a credit rating. I am not sure whether there would be any net benefit to us.

  4. Once upon a time you used to judge the stability of your insurance company by the monumentality of its office premises. The Prudential building is still there lording it over Holborn to remind us of those days, but now where do insurers work. Since you just might need an insurer to deliver it is perhaps worth looking at their ownership and who else is with them, but if we are ticking boxes go for the lowest quote and avoid the risks