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We discuss findings from the Bellwether 2022 report and explore how small law firms can rise to the challenges posed by Professional Indemnity Insurance, compliance, and change management.

The ½Û×ÓÊÓƵ Bellwether 2022 report shows that (PII) a major challenge for small law firms, with 43% of respondents from small firms citing PII as the most significant operational cost. That is not particularly surprising, considering the volatile PII market.

In this article, we investigate the challenge of PII, question whether small firms should consider switching PII provider, and explore how the PII fits into the wider challenge of compliance.

Download the ½Û×ÓÊÓƵ Bellwether 2022 report

Problems with PII

Simply put, PII helps firms to mitigate risk. Solicitors are required to maintain PII in accordance with the. The Rules establish a compulsory level of cover for all firms. The amount of cover depends on firm size and risk exposure, with the SRA Code of Conduct 2011 demanding firms assess and purchase the appropriate level of PII.

The challenge of PII for small firms stems from a volatile market, with premiums increasing in recent years between 5% and 50%, according to the . A variety of factors contribute to increasing volatility in the PII market, including:

• Increases in cyber-related crimes due to changes in working models and business practices
• Rise in negligence claims, as shown by the SRA report on
• Insurers leaving the market at an alarming rate and insurers narrowing firms they wish to cover
• Increases in conveyancing-related claims and reluctance to cover firms with property practice
  

The volatility and uncertainty has led to increases in costs. Small law firms are often forced to accept or in extreme cases struggle to obtain PII from any insurer. The extent of the cost increases, as shown in the ½Û×ÓÊÓƵ Bellwether 2022, remains surprising. When asked if PII costs had increased at the 2021 renewal point, for example, 45% agreed and only 10% disagreed. That cost poses a serious challenge to small law firms, but options to mitigate are limited.

Changing providers

The ½Û×ÓÊÓƵ Bellwether 2022 report demonstrated that small law firms were not doing enough to meet the challenge and the costs of PII. Even though 43% of respondents said PII was the most significant operational cost, only 6% said their firms tried to counter that cost by changing provider.

Instead, respondents said firms are trying to lower PII by starting the renewal process earlier or making internal changes such as improving risk management.

The aversion to changing providers is understandable. One respondent said, for example, that changing providers might make fiscal sense, but it poses potential problems because the firm has built a relationship with their provider and established trust. Another said that they had tried to switch PII providers, but found that other providers did not lead to any substantial savings.

Small firms should do their research. They should first ensure that other options on the market can reduce costs – and other providers may not prove cheaper, especially in the current market. If there are no cheaper options, firms should stick with the present provider and avoid spending time and money finding an alternative that may cost the same – or more – and provide no additional cover.

For the firms that are paying excessive premiums and can reduce costs, switching providers may be the best option. One vital resource for small firms is the , which gives advice and provides in-depth guidance to small law firms that want to change their provider.

The challenge of change management

The aversion to changing PII providers may well be part of a larger risk-aversion ethos for small firms. The aversion to change often stems from complications and complexities that follow change. Consider, for example, that 78% of respondents to the ½Û×ÓÊÓƵ Bellwether 2022 said they struggle to keep up with changes to the law and 77% said they struggle to keep up with compliance regulations.

The challenge of change management across the legal sector – whether relating to innovation or the latest tech, to compliance with shifting regulations or switching PII – is one that needs renewed attention in the coming years. Small law firms should always look to the future and remind themselves that change may feel complex in the short-term, but it will likely pay dividends in the long-term.