14 th April 2011 David Rowe & Pauline McNamara

1. Limerick Solicitors Bar AssociationProfessional Indemnity InsuranceLearning from 2010 and preparing for 2011 14th April 2011 David Rowe & Pauline McNamara

2. Agenda Professional Indemnity Insurance – learning from 2010 and preparing for 2011 • What is Risk Management? • The 2010 renewal • How the underwriters arrive at a premium • How to move on from a claims history • Preparing for 2011

3. Where does Risk Management fit in Running a law firm was relatively easy • You only had to worry about getting the work • Then managing the cost base became a requirement to survive • Then getting paid became an issue and firms were forced to improve their procedures • Now Risk Management has become a necessity – lack of Risk Management can prevent a firm trading (no cover) or render it not viable (premium prohibitive)

4. What is Risk Management? What can go wrong and what is the potential damage caused? How can I limit the number of things going wrong? Accepting that things will go wrong - what systems and control can I put in place to limit the effect of things that do go wrong?

5. Risk Management – the build up • Volumes of business up year on year (until 2007) • PI insurance premiums fell (less premium for more risk) • Firms found it difficult to service the volume - shortcuts taken • The financial dynamics of property markets changed almost overnight

6. the build up cont’d • Clients and financial institutions started looking for potential escape routes and made claims • The profession saw a significant increase in claims against it • The insurers began incurring significant losses • Premiums increased • Insurance companies began to take a more selective approach

7. the build up cont’d • Insurance companies became interested in the risk profile of the profession • When they looked they did not like what they saw and regard the profession as high risk and substantially unmanaged • Now likely to insist on firms managing risk • Encouraged by the number of firms who have voluntarily attained risk management accreditation, but legacy problems persist.

8. The stakeholders - the insurance companies • See solicitors as high risk, following high claims • Will pick and choose • Will look for systems to mitigate risk • Will audit their clients • Want to work with firms to improve their risk profile • Accept that problems occur, looking for post loss corrective actions

9. The stakeholders - the profession • Trading conditions difficult and feel they cannot take more of a burden • Renewal in December 2010 very difficult, multiple forms, uncertainties in getting cover at all and huge premium increases • Feel overregulated and see risk management as more of the same • Practitioners who are claims free struggle to see the value in this, most accept the insurers hold all the cards

10. The Insurance Market • XL through AON • SMDF • Chartis Insurance • Liberty International Insurance • UK General Insurance Ireland (UKGII) • Axis Insurance • Assigned Risks Pool (ARP)

11. Challenges • Late exit of RSA and Quinn Insurance • Chartis heavy handed approach to existing book and not in the market for new business • AON/XL very aggressive/ large primary limits • New entrants to the market very late in process – last week in November – looked for risk management reports/file audits • New entrants required supplementary forms • Lack of consistency in underwriting criteria applied – Chartis in particular

12. Qualified Insurer by premium & firms covered

13. Pricing - 2010 • Up 14% overall • Low risk firms (per solicitor) • Start ups - €6K to €10K • Established firms - €10K to €15K • Larger established firms - €7k to €10K • High Risk • Up to €50K to €100K

14. The Assigned Risk Pool • 38 firms • Premiums • 20% on 1st 500K of fee income • 15% on next €1M • 9% above that All subject to a selective review • Overseen by PII Committee • Investigation by way of risk management audit/terms of reference • 2 year maximum stay

15. How A Premium Is Arrived At Key underwriting considerations 2010 • Practice profile – size, distress, breakdown of work areas etc • Fee income/ability to remain in business – left with run-off potentially • Historic split in revenue generation • Claims • Risk management section of proposal/appetite to RM - make or break in some cases • Undertakings – register in place?/ numbers outstanding

16. Moving On From A Claims History • A visible ‘line in the sand’ between the old regime and the new – new procedures • Time (4 or 5 years) • Full file and undertakings review • Change in management/ownership of the firm • Independent Risk Management Audit

17. Emphasis in 2011 • 2 insurers auditing their client, 2 others currently considering. ARP auditing. • Independent Risk Management Accreditation • Outstanding undertakings – any reasons why they cannot be discharged – regular review of register • Key dates policy & procedures • Title issues

18. Making the Renewal Easy • Go to a specialist broker • Only apply where you might get cover • Fill out the forms carefully • Keep claims moving/ resolve them • Meet your broker/ insurer in advance • Try to save monthly or arrange finance • Complete an independent risk accreditation

19. How the Law Society can help • Closed period for withdrawal/new entrants • Scrap the common renewal date • Common proposal form • Master Policy?? • Review run-off provisions • Enforce obligation to quote within 10 days of proposal form • Proposal forms out earlier

20. Implementing Risk Management – the path • Identify what you need to have in place • Define your standard policies and procedures • Implement and train – bring everyone along • Review the past for errors • Put together the registers

21. Implementing Risk Management – the path cont’d • Have an audit done • Go for level 1 (Essentials) if this is new or level 2 (Excel) if some systems in place • Audit consists of • Review of policies/procedures • Ensuring all in firm know and use procedures • File/undertakings review • Work on the gaps, this is long term

22. Implementing a risk management strategy Practical Tips • Allocate sufficient time and resources – a partner needs to lead the effort • Risk management is a culture not an event – it is long term • Very few firms in Ireland would pass the standard without preparation – this is as expected • Make it an office wide project, the benefits come from eyes and ears throughout • Remove the fear factor – this is a positive step and the benefits are significant

23. How to start - choices • Do it yourself • Take it on with external assistance, pre-audit, policies and procedures, experienced help.

24. Sample of Requirements Client Management (1 out of 8 standards) • Formal procedures required for engaging new clients, limitation of liabilities etc • Who and on what terms • Review creditworthiness • Can we do the work? • Resources and expertise • How do we staff it? • Partner involvement from the start

25. Client Management (1 out of 8 standards) cont’d Policies needed • Partner sign-off of file matter opening forms (ensure compliance going forward) • Engagement letter/S68 letter put in place – but standardised where possible • Conflicts of interest policy • Anti-money laundering policy • Complaints policy (ensure you are aware of and adhere to the policy) • Disengagement procedures (in place – but use of disengagement letters recently introduced)

26. Common myths • Risk management is a bureaucratic exercise of no value • Risk management is an event you have to comply with once a year (passing the exam) • Doing nothing is an option • This is a contentious process where the Risk Management Auditor wants to highlight your weaknesses

27. Conclusions Benefits from the practitioners perspective • Achievement of an approved quality standard • Improved efficiency • Reduction in complaints and potential claims • Lower insurance premium • Savings in time, worry and expenditure • Greater profitability • Potentially a win/win situation

28. Conclusions • Insurance is now the 3rd biggest cost in running a firm • 2010 renewal very difficult, 2011 unlikely to be any better • Pricing levels to remain at current levels • Now part of staying in business – can be fatal • Being pro-active is key, don’t just wait for it to happen • Has become part of doing business and making a living

29. For further information contact: David Rowe Managing Director Outsource Ph: 01 6788490 Email: dr@outsource-finance.com