In recent years there has been a decline in the number of
insurers without financial security ratings operating in the
solicitors' PII market.
Many unrated insurers emerged in the wake of the 2009 economic
crash providing affordable policies to smaller firms who were
unable to secure cover from their more established competitors. The
first half of the decade witnessed the collapse of a number of
these newcomers, including Quinn, Lemma, ERIC and Balva, leaving
thousands of firms across England and Wales uninsured and
struggling to find replacement cover. The failure of these insurers
highlighted the importance of obtaining cover from a financially
secure insurer and the potential risks of making cover selection
based solely on price.
The dangers have also been highlighted by the FCA's recent
censure in February of the managing agents involved in issuing
binding authorities for a number of PII schemes. In a decision
which followed an investigation into the validity of
solicitors' PII cover sold to some 1,300 firms, the watchdog
fined five individuals and two firms a total of GBP 15.5 million,
and banned four of the individuals for significant competence and
The FCA found that the insurance schemes in question were all
linked to Shay Reches, a director of insurance intermediary
Coverall Worldwide Limited with responsibility for a managing
general agent, Aderia UK Limited. Reches used binding authorities
issued by Aderia to various cover-holders, including to a
specialist PII broker, Bar, which targeted solicitors. Security was
needed from a number of insurers and reinsurers based in the UK,
the rest of Europe and offshore. The principal risk carrier,
Sinclair Insurance Company, was registered in the Comoros (an
archipelago in the Indian Ocean) and owned and controlled by
The FCA concluded that failings in the management oversight
throughout these distribution chains, and the failure of the
reinsurance arrangements, contributed to three unrated insurers
– Millburn, ERIC and Balva – all entering
administration and unable to honour the insurance they had offered
to hundreds of law firms.
More broadly, a drop in premiums caused by increasing
competition from rated insurers, coupled with growing scrutiny from
the regulators, means that the PII market may no longer be as
attractive for unrated insurers as it once was.
The decline in unrated insurers in the solicitors' PII
market has continued into 2016 with the announcement, in February
(coincidentally, in the same week as the FCA decision referred to
above), that Elite Insurance (one of only three unrated insurers
remaining in the market, and the only one based in the UK), will
not be writing any new policies or offering renewal terms on its
existing solicitors' professional indemnity book. The company
cited a number of reasons for its decision, including an increased
propensity to fraud on solicitors' client accounts, as well as
falling premiums. Elite's exit leaves only two unrated insurers
on the SRA's Qualifying Insurers panel – Alpha Insurance,
based in Denmark and Enterprise Insurance, based in Gibraltar.
A market research report prepared for the Law Society and
published in April this year shows that, of the 560 1-25 partner
firms surveyed, 6% took out policies with Elite and Alpha
(Enterprise did not appear). Just under a third of the firms
surveyed listed financial security of an insurer amongst the top
three factors when buying insurance with price being
It remains to be seen whether any further unrated insurers will
emerge to fill the gap left by Elite, or whether Elite's
withdrawal will lead to a reduction in capacity for 1-25 partner
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