For most law firms, September is not an easy month. This is because of the annual renewal of Professional Indemnity Insurance.
Any firm of Solicitors wanting to practice in the UK has to have insurance against negligence claims. There is a compulsory layer of cover at £2m per case (£3m in the case of Limited Liability Partnerships). This means that obtaining insurance is one of the highest overheads alongside salaries and premises. September is stressful because until this year, all renewals had to be done by 1st October.Thankfully that has now changed.
So if you saw stressed lawyer in the last few weeks this could be one of a number of reasons!
This year has been a bumpy renewal for many. Two unrated insurers were forced to pull out of the market quite late on; which added to the stampede. In addition insurers were said to be nervous because of the record number of firms who were in ‘financial difficulties’. A few weeks ago it was being predicted that hundreds of firms could end up without insurance by the dreaded cut off date. The effects of that are dire. A firm is allowed a further 30 days to find insurance. If they don’t succeed then they cannot take on further work and have a further 60 days to close the door.
As it happens, the apocalypse did not materialise. According to the Law society’s Gazette just 69 firms failed to get insured by the deadline. That is just 0.65% of the 10500 firms around. Hardly a meltdown.
This has been a very challenging year for law firms with drastic cuts in fees, abolition of legal aid for most areas of work and the arrival of competition from new business structures. But it appears that firms are more robust than experts think.
There have been unfortunate closures and some familiar names have sadly disappeared. But we haven’t seen small to medium practices being wiped out. Firms have had to re-evaluate how they work and embrace new systems and technology. Many have seen the advantage of joining up with others. Some firms who cannot accept change will sadly fall by the way.
But the news of the death of law firms has, to date, been greatly exaggerated.