BusinessCorporate FinanceInsurers’ premium rate line doesn’t add up

Insurers' premium rate line doesn't add up

Professional indemnity costs are apparently rising and will rise further as the rate of insolvencies increase

It’s not a happy circumstance and no great surprise. It might be argued that
firms have had it good for quite some time anyway. But just when firms thought
they were keeping their costs under control while offering clients the guidance
to navigate the recession ­ the insurers come along and hike the price of
insurance because of the possibility of a lawsuit in connection with a collapsed
client.

The recession therefore imposes a direct cost on firms whether they lose
business or not.

Of course, these hikes in cost are pre-emptive. While the number of
insolvencies has certainly risen dramatically in recent months ­ the statistics
and hard pressed insolvency practitioners are testimony to that ­ the evidence
that law suits are going the same way is, well, sketchy at best.

The insurers will argue that the rises are based on historical data. But the
last recession was in the early nineties and conditions are quite different from
then. Transformed corporate governance, a restructured oversight of firms, new
training in ethics, more professional oversight and fresh approaches to
education and continuing professional development have played their part in
changing and improving quality in the profession.

And yet despite all of this the insurers feel they are facing a greater risk.
Not only that, but the risk will be assessed on the behaviour of a small number
of firms compared with the standards offered by the greater part of the
profession.

Not all insurers will be punitive and many will discount heavily for the
improvements and real risks that their clients face . But partners and firms
would be wise to shop around.

comment@accountancyage.com

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