Will following claim and risk trends and give guidance on ways to reduce risk and premiums?
We have all seen some dramatic changes in the professional indemnity sector over the last 10 years. In 2000 there were a total of 34 companies writing the whole of the market, today there are just 11. We have moved from SIF to ARP and of course Outcomes Focussed Regulation with risk management as one of its cornerstones...
Would you be surprised to learn that only about 300 firms generate £50 million annual claims? By studying claim history and trends it is suggested that it is possible to extrapolate key RISK FACTORS which if addressed will ensure that your firm exercises good governance but perhaps as importantly, may see a dramatic drop in your risk levels and hopefully indemnity premiums.
Claim Trends
The majority of claims are those which emanate from the commercial sector however as an overall percentage of cost to insurers, it is the property sector which comes top as being the most costly. The commercial and property sectors as we know often appear to mirror the peaks and troughs of the economy but there remain a number of constant triggers within the commercial sector which result in a high percentage of claims. The following areas are often cited by insurers as those which give rise to the highest percentage of claims in this sector:
- Contract terms
- Merger and acquisitions
- Commercial Lease / assignment (drafting the terms)
- Commercial title (lease freehold transfers)
- Trusts (high net worth individuals, resulting in large claims)
- Dispute Resolution ( eg missing time limits, expert reports not relied on)
However across all the above areas there are 3 main drivers which commonly occur:
- Incorrect advice as to the law
- Incorrect advice about prospects
- Advice upon costs and quantum
Do we need to get it right 1st time Your Honour?
You would be forgiven for having a ‘head in hands moment’ when reading that incorrect advice as to law is a main driver for claims. No doubt it is prudent to remind ourselves of the judicial mindset and tests (some say hurdles!) laid down in the various landmark cases. The mantra in Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 should never be far from ones lips;
it is well established law that it is sufficient if he [solicitor] exercises the ordinary skill of an ordinary competent man exercising that particular art
Or in Saif Ali v Sydney Mitchell [1980] AC 198;
a negligent act... one which no member of the profession who was reasonably well-informed would have done
The cited cases are but two examples which illustrate the judicial mindset in an area which constantly changes and develops. Whilst specific professional advice should always be taken in anyone’s own specific circumstances, the cases paved the way for Lord Neuberger who said in Flenery and Leach (2nd Edition);
The truth is that no busy professional person, least of all a solicitor, can get through a full career without committing an act, and probably several acts, of negligence. Both the intricacies of the law and communication between people can be complex, multi-faceted and prone to misunderstandings, so it is not surprising that mistakes get made
Whether or not you agree with Lord Neuberger there are some actions which your firm could take to manage your risk - in fact with Outcomes Focussed Regulation around the corner, no firm no matter how small will be able to get away with not having systems in place to identify and manage risk.
Risk Management
Risk register - a spreadsheet identifying areas of risk for your practice, in which work type, and how you manage and monitor that risk is becoming essential.
File reviews - everyone says they should be random. In fact, they should also target known risks in your firm – for example that partner who is notorious for forgetting to send out costs letters, difficult clients or ask your credit controller whom they think should have their files reviewed!
Unqualified fee earners - does their induction and training cover essentials of professional conduct, file management as well as the usual health and safety and IT?
Non compliant partners or lawyers - you need a plan to get them on board and sanctions if they aren’t. How about feeding compliance behaviour into performance reviews?
Clearly with the changes due in October 2011 it may be time to look again at the Risk Factors?
Tim Hayes - Legal Counsel, Compliance - Pannone LLP
Rachel Dobson - Operations Director - Pannone LLP
