How did you do?

In the January column, we issued this challenge: “At the end of the year, [we] will pose the question – what have you done to improve your risk management over the past year?” This was not intended to be a hypothetical or rhetorical question.

At a meeting earlier this year, underwriters from one of the Master Policy co-insurers asked what practices were doing to make improvements to their risk management systems and procedures. If those Master Policy co-insurers came to your office and asked you to list the improvements you have made in the last year, how would you answer? Did you implement any of the advice and suggestions contained in the monthly Journal articles? We hope that you would be able to point to some or all of the following risk management activities in your own practice.

Risk management awareness

Are you able to say that awareness of risk management issues has improved throughout the practice, or within certain departments or among certain categories of staff? How was that achieved? What evidence could be produced to support that? Evidence that all partners and staff (including support staff) have received basic training in risk awareness, possibly following the introduction of a risk management training plan? Indeed devising, introducing and implementing a risk management training plan is the best way of raising risk awareness throughout the firm to a high level.

Does risk management now feature as an agenda item at partner and/or departmental meetings? Are staff now encouraged to make suggestions for improvements to your risk management systems and procedures? An example of which we are aware is the suggestion by a member of staff in one practice that there be introduced a system for chasing up the implementation of outstanding letters of obligation after settlement of conveyancing transactions.

Attendance at events

You should be able to show that all the solicitors in your firm have met the Law Society of Scotland’s CPD requirements, but have you set a target for risk management training/study? Most of the Society’s requirements will have involved technical training by group study, often at courses, seminars and workshops run by the Society or other training providers. While errors in law only account for a very small proportion of claims under the Master Policy, technical training is important, from a risk management point of view, in keeping it that way.

What about the CPD requirement to do a certain amount of management training? Did you include risk management? Have partners and/or staff attended one or more risk management training events? The main event during the year is the annual series of Risk Management Roadshows, aimed at the designated risk management contact in each practice, which comprise case studies illustrating risk management points arising from the current Master Policy claims experience as well as emerging areas of risk which may require to be addressed by practices in the near future. Training materials were issued to all delegates, and we know that some practices have used these materials to run an in-house version of the Roadshow for their own partners and staff. Risk management training materials are available from the Master Policy team at Marsh.

Of course, events which address risk management issues in whole or in part do not always have to include the words “risk management”. There is an increasing recognition of the importance of “soft skills” training, such as communicating with clients and dealing with awkward or difficult clients, much of which can have a beneficial effect on practices’ risk management. Have you undertaken “soft skills” training during the year?

Addressing identified risk issues

Would your firm be able to demonstrate – to insurers, for instance – that an analysis is undertaken when claims and complaints arise? To be effective, such an analysis should, after carrying out a fact finding exercise, first identify the underlying cause(s) (and not merely the legal cause) of claims and complaints, and the costs to the firm in dealing with and resolving them. Thereafter a risk improvement plan can be put in place to address the identified issues to avoid repetition. The plan would require that, within a stated timescale, relevant systems and procedures be reviewed and revised with enhancements being introduced after such training as may be necessary.

If no such analysis has been carried out in the last year because the firm has had no claims or complaints, what about “near misses”, write-off of fees, outlays, and time, or loss of clients? An analysis of those matters can be as beneficial for the firm’s risk management as learning from claims and complaints.

Risk is never static and we would hope you would be able to show that your risk management systems and procedures are regularly reviewed. We know from the Risk Management Roadshows that many firms have reviewed their terms of engagement over the last year, and not just to ensure that they deal adequately with the compulsory matters laid down by the Solicitors (Scotland) (Client Communication) Practice Rules 2005.

While in certain cases, the introduction of the Rules may have been the catalyst for the review of terms of engagement, the introduction of the Legal Profession and Legal Aid (Scotland) Bill has prompted a wider consideration by many practices of the whole engagement process, focusing in particular on the basis on which they take on clients, new transactions, or proposed new areas of work. For example, there is anecdotal evidence that practices are tightening up their client vetting procedures to avoid taking on clients whose expectations of result or level of service could never be met. There is also anecdotal evidence that practices are re-assessing the balance of risk and reward involved in carrying out work in certain areas of practice. In particular, some practices which carry out civil legal aid work have indicated their intention to withdraw from this area of work.

Have you taken time to consider new or emerging areas of risk? When new legislation is introduced affecting the areas of work carried out by your practice, the practice will, no doubt, arrange for all relevant partners and staff to receive any necessary technical training. But have you given thought to the risk management implications of the new legislation, and planned training accordingly? For example, what conclusions have you come to about possible implications for the firm’s approach to wills of the changes to taxation of trusts?

What about new ways of doing existing work? Take the Automated Registration of Title to Land system (“ARTL”), for instance. There can be few conveyancers who do not know that ARTL will come into operation in 2007. Perhaps in the past year you have attended one or more events about ARTL and have seen, whether at an event or online, a demonstration of the system. If your practice has decided that it will use ARTL for ARTL-compatible transactions, as an alternative to the current paper-based system of land registration, you may well have been thinking about the practicalities of how your practice will carry out ARTL transactions and any changes to your existing methods of working that may be required.

As part of that exercise, did you think about the risk management implications of ARTL? It would have been wise to do so. Did you conclude that the risks were greater, lesser, the same or different from the current system? Did you identify any risks at all? Have you or will you introduce new procedures or enhancements of existing procedures to deal with those risks? These are all questions which practices considering using ARTL will have to address, if they have not already done so. It would also be a good plan to review the position after some practical experience of using ARTL has been obtained.

Risk management manual

Practices which have a risk management manual have told us of the benefits to the practice in ensuring that all staff are aware of the risk management systems and procedures within the practice and that risk management is implemented consistently throughout the practice. However, many practices might find the prospect of drafting a comprehensive risk management manual to be a daunting exercise. Have you thought about introducing a risk management manual during 2006 and taken a similar view?

One practice with which we discussed this, certainly did. Yet when we asked them about specific systems and procedures in place in the practice, it was clear that all the essential issues had been covered. While some of the firm’s procedures had not been set down in writing and incorporated into any kind of manual, there were separate memoranda, notes and styles dealing with most points. All that required to be done was to cut and paste the existing written material into one document, draft the necessary text to fill in the few remaining gaps, prepare an index – and a risk management manual had been created, and then distributed to partners and staff, with comparatively little effort.

For most practices, starting with a blank piece of paper should not be necessary – risk management systems and procedures will exist. For example, practices will have client and transaction vetting procedures (even if they only cover anti-money laundering and conflicts of interest checks), styles of terms of engagement, and diarying procedures. Many policies and procedures will have been written down and the real difficulty may be to locate all the existing material scattered throughout the practice and bring it all together.

Having reached the stage of reducing approved practices and procedures to writing, it makes sense to allocate responsibility and timescales for monitoring compliance and for regular review of the manual. Otherwise, there is a danger that your efforts in devising and documenting sound processes are undermined because there is inconsistency in implementation or because the documented procedures become superseded and obsolete over time.

Never too late to start

Hopefully you are able to respond positively to the question posed at the beginning of this column when reviewing your practice’s risk management efforts during 2006. But if not, why not make a start now? It is never too late. And for those practices who can point to one or more improvements in their risk management during 2006, the challenge is to keep that going.

RUSSELL LANG AND MARSH

Russell Lang is a former solicitor in private practice who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, the world’s leading risk and insurance services firm. To contact Russell, email: russell.x.lang@marsh.com .

The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.

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