Claims: beating the trigger

It’s that time of year again. Master Policy premiums are due and solicitors have to own up to any transaction they think might give rise to a negligence claim. But what has been the recent claims record under the policy, and what more can the profession do to help keep its cover affordable?

For the moment, there is a positive tale to tell when the annual presentations are made to its London-based insurers. So reports Dundee and Angus Council member Murray Etherington, who convenes the Society’s Insurance Committee. Recent initiatives by the committee, working with Master Policy brokers Lockton, and an improving claims picture, have resulted in a three-year deal until the 2019-20 practice year with stepped decreases in the global premium – provided certain trigger statistics are avoided.

Down, down, down?

Only a few years ago the level of claims was causing much concern, so what has changed? One obvious answer is that the surge caused by the property market recession, which led to lenders trawling through their panel firms’ files as cases emerged of non-compliance with the CML Handbook, has mostly worked through the system – though new claims still arise.

But in addition, Etherington tells me, “We have seen a bit of a change of circumstances in some firms. They are taking risk management more seriously; we are seeing increased numbers coming to our roadshows to listen to what Lockton are saying, so it has been twofold.”

In terms of the global premium, under the deal the £17.25 million for the current (2017-18) year, itself a decrease, will fall to £16.5 million in 2018-19 and £16 million in 2019-20 – performance triggers permitting. Some of these are outwith the profession’s control: a UK recession (two consecutive quarters of negative GDP growth), or base rates rising to 2% or more, could cause a rethink; but numbers of claims, and the cumulative four-year total value, also feature. In fact one claims category breached the trigger figure, but as the total included a number of potential matters from a scrutiny of the files of a firm no longer practising, the insurers took a lenient view.

That said, practices may not notice much of a reduction when individual premiums are calculated. Each time one of our larger firms merges into a practice based outside Scotland, its share of the global premium disappears and everyone else has to pick up the slack. So as long as the merger trend continues, Scottish practices may have to run hard in terms of their claims record just to stand still.

Off on the right foot

“It gives us some certainty around pricing,” Etherington says of the deal, “but what it also does is focus the mind on intimations and claims, so it allows us to say, right, how can we stop them from happening, and we can stop them by making sure that firms are much more aware of their risk management procedures. That’s the real important thing for me. The numbers and the triggers are good to have, but it’s about making the profession aware that if you make that claim, it could potentially be the straw that breaks the camel’s back. And we are all in this together.”

For the committee, he explains, “Ultimately the key thing is to make sure that firms are aware of the things they should be doing that prevent claims: have you sent out terms of business at the outset; are you scoping your work properly; are you conforming with the CML Handbook; have you a checklist in place to ensure these things are carried out? Because although they might not mean huge amounts if there is a claim, the number of them can cause a trigger.”

Scoping a transaction, in particular, “is where we need to get a little bit smarter because scoping is going to be a huge thing over the next couple of years” – to ensure that clients know not just what their solicitors are going to do, but also what is excluded, which may not be effectively done if terms of business are left too general. “That’s an important aspect as well. I think we are quite good at doing our letters of engagement, saying what we are going to do; we’re not so good sometimes at saying what we’re not going to do, and that’s becoming an ever increasing part of this, how to leave no dubiety about what the lawyers are actually going to provide.” 

CPD: the new requirement

So seriously is risk management now being taken that as from the coming practice year, it will be a compulsory part of the CPD required of every practising certificate holder. What that consists of will depend on the individual solicitor.

“As a partner you will have a different view on risk management to a trainee, so Lockton is picking out a number of different packages and mainly online programmes for people to link in and do,” Etherington explains. “At a more junior level it’s about an awareness of risk management; at a more senior level it’s more about practical solutions you can put in place to make sure that some of the issues we see coming up time and time again can be addressed.”

It will apply to in-house lawyers too, though “they talk about risk matrixes, so it may well be something more internal for them”.

He adds: “CPD is changing quite substantially and the idea is more around your own learning, which we accept, but there are certain things that are core, risk management being one. What we find is the people that do these courses and turn up to roadshows are not necessarily the ones we want to be getting at, because the chances are they are already putting it into practice. The ones we want to get at are those who don’t turn up at events or don’t see the benefit in risk management or are too busy to deal with it, hence the reason why we felt we had to make it compulsory.

“It is the suggestion of the insurance committee that two hours of risk management CPD be undertaken each year.

“There is a little bit of an attitude that the Master Policy is there and everyone will be insured, therefore I don’t need to take my role in it particularly seriously. I think that’s frustrating for those who are trying their best to have good practice.”

Again, the Innovation Cup competition went out of its way when launched this year to involve everyone from law students upwards in risk management – the first winner of the £1,500 prize was a trainee. 

An offer you should not refuse

It is not only individuals who are being asked to raise their game. Practices identified from their claims record as likely to benefit from a risk management audit will shortly be invited to allow an experienced solicitor to come in, review their procedures and policies and offer practical advice on steps to reduce the frequency of their claims. “It will be a solicitor who has been in private practice for a number of years, who understands the pressures, and who can give practical advice,” Etherington assures us. “We are looking usually at 10 or 15 firms, who might not even realise that in the global scheme they are the ones that have more claims or costlier claims, and if we can do something about that, it has a huge impact for all of us.”

The idea is borrowed from Canada, where one province tried it and achieved a much improved claims experience. Accepting help is not compulsory as things stand, but “We have said that if we don’t see a positive takeup by the firms that have been selected and have been written to, we would be trying to make this compulsory. Because we feel it’s that important. We are not trying to make life more difficult for firms; we are just trying to make the experience for clients and for the rest of the profession better, and make sure the Master Policy, which is one of our Crown jewels, continues long into the future.”

He emphasises: “All three of these things [this scheme, the cup, and the CPD change] the insurers see as absolutely fundamental to allow us to reduce our claims and therefore the amount that the Master Policy costs.”

How to follow that and impress the insurers again next year? Etherington isn’t sure yet, but “From our perspective it’s trying to make sure the profession don’t just see us as dictating to them what they should be doing, but trying to help them practically.”

He concludes: “There’s nothing particularly unique about what we are trying to do; we are just looking at what others have done and what has been successful and hope that we can bring it into Scotland. Because I really don’t want to end up in an English situation, everybody going off to their own insurers. I think the Master Policy is absolutely the right approach, but we all need to play our part in making sure we are taking risk management seriously, to allow us to bring the premiums down to a manageable level.

“We’re never going to get rid of all of our claims. There are always going to be mistakes, there are always going to be issues, but it’s trying to get rid of the preventable ones as much as we possibly can.”

Insurance? Me?

As a private client partner at Thorntons, Murray Etherington was a bit doubtful when first asked if he would join the Insurance Committee. “I’m not an insurance lawyer and I didn’t expect it would be interesting, but it’s been incredibly rewarding and it’s one of the committees that I would say to anyone, if you’re looking to join a committee, don’t dismiss it because it’s got the word insurance in it.” 

Rather than deal with individual claims, the committee’s main remit is the Master Policy and its renewal, “working with the brokers on keeping the same level of coverage and trying to get the best possible price with as wide a range of insurers as we possibly can. So it’s all about the generality of claim numbers, intimations, and that’s where risk management becomes very important because we’re not necessarily wanting to focus on a particular incident, we want to look at how we can stop it happening to 10, 15, 20 firms because that will impact on the number of claims that we’ve got. “The committee is trying to drive risk management forward because we know that helps when we go to London and try to secure the best price: the insurers understand that we are actually taking it seriously and we are not a ‘risk’.”

Insurance? Me? 

As a private client partner at Thorntons, Murray Etherington was a bit doubtful when first asked if he would join the Insurance Committee. “I’m not an insurance lawyer and I didn’t expect it would be interesting, but it’s been incredibly rewarding and it’s one of the committees that I would say to anyone, if you’re looking to join a committee, don’t dismiss it because it’s got the word insurance in it.” 

Rather than deal with individual claims, the committee’s main remit is the Master Policy and its renewal, “working with the brokers on keeping the same level of coverage and trying to get the best possible price with as wide a range of insurers as we possibly can. So it’s all about the generality of claim numbers, intimations, and that’s where risk management becomes very important because we’re not necessarily wanting to focus on a particular incident, we want to look at how we can stop it happening to 10, 15, 20 firms because that will impact on the number of claims that we’ve got.

“The committee is trying to drive risk management forward because we know that helps when we go to London and try to secure the best price: the insurers understand that we are actually taking it seriously and we are not a ‘risk’.”