What Does PII Have in Store for October 2024?

Professional Indemnity Insurance (PII) sees two big buying periods in the year, a small percentage in March and April and a larger percentage in October.

PII over the last few years has been somewhat challenging. Premiums have surged and insurers have had a lack of appetite to take on new clients, with no new entrants coming in to compete in the market to help push down premiums. As far as we are being told, underwriters continue to be selective and careful in their approach as insurers focus on reducing client and market volatility

In April, law firms with good claims records are achieving rate improvements but tying this in with the firms’ overall financial health – sales mix, board experience and financial runway have always been important but are “potentially” under higher scrutiny.
On the opposite side, firms with a number of recent claims are focussing on management controls, to shield themselves from future claims.

Emerging Threats: Fraud, AI, and Cybersecurity

The biggest threat considerations, albeit they aren’t overly new but are evolving rapidly are fraud, AI and cyber security.

Fraud is obviously a huge consideration at all levels, ensuring businesses have a policy around transfer of monies is now essential. Regular training on fraud and its impacts are now becoming an expectation as opposed to a “would like to have”.

Cyber Security is such a wide reaching product, the Cyber Security Threat Report from the National Cyber Security Centre has been sent to us numerous times from numerous banks – Sadly, two stage authentication is now not really enough of a deterrent.

AI is an evolving technology, and insurers are looking to benefit from the usage of AI while ensuring client firms are shielding themselves from the negative effects of AI and those who aim to target them. This will be an evolving subject but as the UK currently doesn’t have a central AI regulator and there are no existing plans to establish a central regulator, caution to all firms is advised.

Are There New Products in the Market to Support the Professionals Market?

The most exciting product is a PII and annual tax credit limit. It allows a business to know they have everything approved for the year and dip in and out as the business sees fit.

There is now a small market for legal firms using invoice finance and single invoice finance products. These are few and far between but this product can be a great fit for firms in the right sectors.

Lastly, the option to get clients to pay up front and stage their payments out over a term, the risk then moves to client side; it’s effectively like Klarna for business.

The financial challenge of PII renewals

Professional indemnity insurance is not just a prudent choice, but a regulatory necessity for many businesses, particularly those in the legal, accounting, and medical professions sectors. The annual cost of PII can be substantial, reflecting the level of risk and the potential for high-value claims. For small and medium-sized enterprises (SMEs), these costs can represent a significant outlay of funds that might otherwise be allocated to operational expenses or growth initiatives.

How to Best Manage Your PII

PII can be funded at various levels, with terms ranging from 10 months to 18 months, typically aligning with the policy length.

Facilities under £250k can be arranged within a few days, while those over £250k may attract different funders offering significantly lower costs but requiring higher scrutiny and a longer process. We recommend applying at least two weeks before your premium is due. Given that October is the busiest buying period, you don’t want to risk running out of time!

What Other Funding is Available in the Market to the Profession?

Legal firms, often challenging to fund due to complex ownership structures, have a variety of financial products available to support their needs:

• HMRC Obligations – Income Tax, Corporation tax and Capital Gains Tax over 6 and 12 month periods as well as VAT over 3 months.
• Partner Equity and Buyouts – Financing options are available for partner equity, buyouts, and business acquisitions.
• IT, Vehicles and Fit-Outs – For firms with significant IT expenditure (over £50k per annum), there are some interesting IT finance products on the market.
• Commercial Mortgages – These include commercial investment mortgages, as well as SIPP and SSAS mortgages.
• Business Loans – Both short-term and long-term business loans are accessible.

Final Thoughts

October 2024 presents a critical period for PII, with firms facing ongoing challenges and emerging threats that require careful management. By staying informed about market trends, leveraging new products, and securing the right funding solutions, firms can navigate these complexities and position themselves for success in the year ahead.