Regulated legal services professionals are required to have PII so that if they make a mistake that causes harm to their client there is money available to mitigate that harm. The hardening market followed a previous period of lower PII costs. The cost of PII is paid for by law firms and therefore by their clients. Recent developments in the insurance market have led to increases in PII costs for professional services firms, including providers of legal services.
The Legal Services Board and the Solicitors Regulation Authority commissioned Frontier Economics to analyse PII data. Including via econometric analysis which is the statistical analysis of economic data to quantify the cost variations of different factors. Some of these relationships are already known anecdotally, this research gives empirical demonstrations of those same relationships.
In the sample of firms that the research analysed PII premiums were typically between 3% and 9% of their annual turnover, with a median average value of 5%. Smaller law firms and law firms specialising in property work tend to pay higher premium rates as a percentage of their annual turnover. For example, a law firm with a median turnover (£765k) would pay twice the premium of an otherwise identical firm with a turnover of around £3.2m. While a law firm doing £60% of their work in property would pay a premium rate 1.5 times higher than an identical firm doing 30% property work.
Find out more:
- Read the report (pdf)