Law firms face closure as insurance costs set to double

SOME legal firms may be forced out of business due to huge hikes in the cost of professional indemnity insurance.

According to the Law Society, the cost of insurance is expected to have increased by more than 100% for firms in some cases, although it expects to have more accurate figures in the coming weeks.

The deadline for obtaining insurance for around 2,200 firms around the country was December 1. Solicitors are unable to practice without insurance.

Last year, professional indemnity insurance was available for a single practicing solicitor for about €8,000. That figure is expected to have risen to as much as €24,000 for the next year.

Director general of the Law Society, Ken Murphy, said international problems in the insurance market and the collapse in the property market had led to an increase in claims.

“All insurance companies are a lot more cautious in terms of general risk. They have made losses like everybody else in the current climate and look much more closely at claims.”

“The downturn has led to an increase in the number of claims and the cost of claims in terms of property. Insurance companies are telling us they are making unsustainable losses and that’s now being passed on,” he said.

Realising the scale of the problem, the Law Society set up a task force last January to negotiate more equitable terms with insurers. Insurance companies effectively requested a reduction in terms of protection being offered to solicitors.

As a result, the minimum amount of cover per case required has been reduced from €2.5 million per case to €1.5m per case.

Another crucial change has come in the form of the suspension of the assigned risk pool, which provides for insurers of last resort.

Operating in a similar fashion to the motor insurance bureau, it was used as a safety net for solicitors who were having difficulty getting insurance due to a poor claims history. By using the pool, firms could continue to trade and work their way back to a level where they were again insurable.

Mr Murphy said despite the negotiations, it was likely that the increased cost of insurance would push some firms out of business.

“It’s like a man standing with a foot in two boats that are moving apart. Premiums are going up yet the amount of work that practices are getting are going down.

“It’s likely that some firms will be unable to pay the premium and be pushed over the edge and become uneconomical,” he said.