The Solicitors Regulation Authority (SRA) and the Legal Services Board (LSB) commissioned Frontier Economics to carry out research on the professional indemnity insurance (PII) market.
Our research, prompted by anecdotal evidence of significant PII cost increases for professional services firms, aimed to investigate concerns that cost increases might adversely affect the legal industry, with smaller law firms potentially struggling to cope. The SRA and LSB, regulators of solicitors and legal services in England and Wales, sought to explore the factors driving variations in insurance premiums, the role of these premiums in overall expenditure and pricing decisions, and potential regulatory actions to mitigate consumer and provider concerns.
Our approach involved a literature review, econometric analysis of matched data sets, interviews with key stakeholders, and workshops with market experts. Key data sources included surveys of regulated law firms, SRA firm characteristics data, and pricing data published by the LSB.
Some key takeaways from our analysis included:
- PII premiums typically range between 3% and 9% of law firms' annual turnover, with a median value of 5%.
- Smaller law firms and those specialising in property law tend to pay higher premium rates, holding other factors constant.
- No conclusive evidence was found of a link between premium rates and an individual law firm’s claims history.
Summary of key findings
Our findings confirm quantitatively the views expressed in previous conversations with stakeholders, suggesting that both smaller law firms and those carrying out more property work pay higher premium rates, all else being equal. Although 80% of law firms in our sample pay a premium rate of less than 10% of turnover, 90% of those paying a higher rate are smaller firms.
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