Professional Indemnity insurance is advisable for most professional businesses but for law firms it is compulsory.
Renewal has been complicated by the fact that since 2012 insurers were required to disclose their credit ratings in order to become “qualified” by the SRA (Solicitors’ Regulatory Authority).
In the last year a number of qualified insurers have become insolvent and the financial situations of approaching 1,800 law firms are being closely monitored by the SRA.
At the same time at least 185 law firms have failed to meet the deadline for re-insuring and if they fail to do so within 90 days under SRA regulations they must close down. Already one London firm, Harris Cartier Limited, has entered administration, the first of what may be many.
Is it time that the culture of law firms is changed so that they see themselves as businesses like any other, requiring a proper business plan with a forecast to support the plan. Such plans might also benefit from input by other experts such as accountants and marketing specialists where lawyers have tended to do it all themselves.
Given the lengthy time between taking on a client, completing often complex legal proceedings and the point at which the job is complete some law firms may need the help with running their business and if necessary restructuring it if they are to ensure they are not forced into closure by failing to put in place the systems that any other business would regard as normal.