Solicitors - Risk Management the route to reduced PII premiums in October 2011: risk management
Article by Francis Dingwall
Partner - Legal Risk LLP
If you devote resources to risk management between now and October 2011, will it lead to a corresponding reduction in your premium? Many think the answer is no, because professional indemnity is underwritten on a ‘claims made’ basis. Risk management is forward-looking, and will not prevent the mistakes – already made, lurking in closed files – which will give rise to many of next year’s claims.
But insurers often say they will take it into account, if a firm has taken steps in the previous 6-12 months to establish or develop a risk management system. First, because some of next year’s claims will result from work your firm has yet to do. Second, because the insurer can see that the firm is moving in the right direction. It evidences a good attitude towards risk, which will reassure the insurer who has to decide whether to underwrite that risk.
Insurers will not be impressed by promises in the proposal form in September 2011, promises to implement a risk management system in the future. That will be too late. It may even have a negative effect: it highlights the fact that no safeguards are in place, and the insurer cannot be sure that they will materialise once the premium has been agreed.
You will never be able to measure the premium saved in exchange for putting resources into risk management. But there will be a saving, and your business will be stronger, the services you provide to clients will be better.
That is why rule 5.01(1)(l) of the Solicitors’ Code of Conduct 2007 requires the partners in the firm to provide for risk management, as part of their regulatory obligations to make effective arrangements for the management of the firm.
How to make a start, or – if you have already taken risk management steps – take it to the next level?
A good place is by compiling – or reviewing – a list of the top 10 risks the firm faces, the risks that the firm needs to tackle.
The risks a firm faces are not peripheral. They sit at the heart of the practice. Contrary to many lawyers’ beliefs, law firms are risk-taking businesses. The lawyer accepts the transfer of risk from the client, for instance the risk of missing a key date for the issue of proceedings, registration of title, or filing documents with Companies House. The lawyer has – or should have – the skills and systems for managing those risks, and risk management is about supporting and developing those skills and systems.
Key areas of risk the firm faces from a professional indemnity perspective include:
- Professional risks
- Client risks
- Operational risks
- People risks
Within those categories, a firm needs to spot each risk, evaluate it, address it, and review it.
Legal Risk LLP offer two tools for kick-starting a risk management system, or for taking it to the next level:
- Desktop online risk management questionnaire, for partners and staff to complete anonymously at their desks, which will give a snapshot of the firm’s existing systems, as perceived by their users, enabling you to identify risks.
- Professional Risk Report, an external ‘gap analysis’ involving a review of the firm’s existing systems and key compliance documents, and interviews with key personnel, which will enable us to identify and assess key areas of risk, and provide recommendations to address them.
Francis Dingwall
Francis Dingwall is a partner in Legal Risk LLP, a firm of solicitors specialising in advice on Professional Indemnity and Professional Regulation for law firms.