Risk Dimensions 1 - August 2020

Welcome to our new law firm newsletter, which we aim to publish three times a year. Each edition will examine a selection of topical issues that are core to professional indemnity risk. In this edition, we discuss the current professional indemnity (PI) insurance market conditions, and the pros and cons of third-party managed accounts.

PI Insurance Market Update

For well over a decade, plentiful capacity and intense competition for market share drove down UK insurance rates, and increased the scope and availability of cover.

Those conditions generally started to plateau in 2017, which coincided with some syndicates exiting the market. Although small in number, the syndicates were significant in terms of capacity and position, adding to the realisation that increased focus on portfolio performance and longer-term stability was inevitable.

Against this backdrop, the Lloyd's review in 2018 delivered the impetus and requirement for many insurers to re-engineer their portfolio, and introduce dramatic measures to try to turn around their results, or risk being closed down.

To read the full article, download our newsletter.

Third-Party Managed Accounts: What Are the Pros and Cons?

Third-party managed accounts (TPMAs) seem to have a lot going for them. Essentially, a solicitor can "outsource" the operation of its client account to a separate FCA-regulated entity.

By doing so, they mitigate risks arising from third-party client account fraud, employee client account fraud, and "fat finger" negligence (that is, accidental keying errors, or the innocent payment to a wrong party).

Given that claims arising from such events are covered under Solicitors Regulation Authority (SRA) minimum terms and conditions (MTC) policies, insurers might also find TPMAs appealing. Particularly when:

Commentators have suggested that millions of pounds have been paid out in respect of such claims in recent years, as cyber criminals target money held by law firms.
Claims relating to loss of client funds tend to be determined based on trust principles, where asserting contributory fault and/or relying on S61 Trustee Act defences are difficult (see, for example, "Dreamvar: The Final Chapter").

Yet take up of TPMAs has not been widespread.