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Download our Start-up GuideProfessional Indemnity Insurance for a New Law Firm
Obtain a competitive PII quote before you make an application to the SRA.
Professional indemnity insurance for a new law firm
Getting a Professional Indemnity Insurance (PII) quote is a requirement by the SRA before you make an application to be an authorised firm.
Insurance cover against liability claims not only improves a law firm’s security, but also provides protections for its clients.
By submitting your details, your information will be processed by Intellistart and our partners. Information on how we handle your data is in our privacy policy.
What do I need to get a professional indemnity quote from an insurer?
When submitting your application to insurers, they will want to see the following:
- a fully completed proposal form,
- a copy of your business plan,
- 12-month cash flow forecasts,
- CVs of all the fee earners.
Other documents can also be submitted alongside the above. You can submit client care letters, privacy policies, data protection policies, business structure charts, etc.
Mike Filson
Coverex Insurance Brokers
Mike’s Expert Tip
“In an ever hardening market and with a reduced pool of insurers, it’s more important than ever to get your application right the first time.
Once an application has been submitted, it’s very difficult to substantively change it. Therefore, ensure you have taken your time before submitting it.
I encourage my clients to send me the application before we submit it to insurers to ensure we can present the application in the best way possible.”
Mike Filson is Managing Director of Coverex Brokers Limited. As well as being a non-practicing solicitor, Mike has insured more than 450 law firms over the last 6 years and has guided over 150 new law firms through the setting up process.
Connect with Mike Filson / Coverex Brokers
How much will the professional indemnity premium for my new law firm cost? What factors determine the PII premium?
The premium cost depends on the predicted turnover and the areas of work you are looking to cover (amongst other things).
Usually, PII insurance is somewhere between 2-5% of your firm’s turnover, or in your new law firm’s case, the predicted turnover.
For a start-up practice, it is often at the lower end of the spectrum, depending on the risk level of the work being taken on.
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What do insurers want to see in the proposal form?
All insurers have slightly different criteria. But make sure that the fee earners within the practice have the requisite experience within the areas of work listed.
Areas of work in your startup law firm
If the CVs of the fee earners don’t indicate they have previously undertaken areas of work outlined within your business plan, then this may raise insurer concerns.
Do I need a detailed cash flow forecast?
Insurers will want to see that your business will be viable. Therefore, a detailed 12-month (we recommend a 24-month) cash flow forecast is required.
No insurer wants to be the one that has to cover the firm’s runoff. This is because runoff premiums are often either not paid or even if they are, only usually around 3 years worth of premium when the insurer will have to cover you for 6.
Typically, insurers will want to see that turnover is at least £40k per partner. Otherwise, they may not view this as a viable business. Turnover is one of the key factors in determining what the premium will be; the higher the turnover, the higher the premium that insurers will want.
Risk management and case management systems
The other factor insurers will also want to assess is whether you have considered risk management.
Will your new law firm have a case management system or a central diary? Do you have contingency plans, disaster recovery plans?
Furthermore, are you going to have a client account? Who will manage this and who will have access to it?
Lastly, if you have fee earners, how will they be supervised? Will there be branch offices? How will you ensure suitable supervision and quality control is in place?
How much insurance cover do new law firms need?
If you intend to be a sole practitioner or a partnership, the minimum SRA requirement is £2 million cover.
On the contrary, if you intend to set up a limited company or a Limited Liability Partnership (LLP) then you need to have at least £3 million cover.
Client Testimonial
“Excellent Services on All Fronts
We used Peacock Risk Management and Intellistart’s services in relation to our Law Firm Start Up, as well as provision of Indemnity Insurance and Legal Web Design.
All the services we received were excellent on all fronts and the key to this was speedy communication from all members, and in-depth knowledge and expertise, allowing them to guide us through the challenges and concerns of starting a new business.”
Ratika Puri
RPK SOLICITORS LTD
Areas of work that have an impact on your PII premium
Work types that will be carried out in your new law firm will most definitely have an impact on your insurance premium.
Areas such as conveyancing and wills tend to make up a large majority of all claims against solicitors. Therefore, premium ratings in these areas tend to be high.
Over recent times with the rise in cyber crime, any area of law where solicitors could be required to hold a large amount of client funds is seen as an increased risk by insurers. This is because any insurer that is allowed to insure law firms is required to replace any misappropriated client funds within 5 working days of the theft. This is a huge burden placed on the insurers. Hence why firms that could be potentially holding a large amount of client funds will need to show what extra protections they have in place to minimise the cyber theft risk.
Commercial work is also seen as a higher risk given the values involved if something was to go wrong.
If you are only going to do low-value commercial work, it is important to clarify this in the business plan, so to ensure that your premiums are not unnecessarily higher than they should be.
Niche firms that specialise in one of the low-risk areas such as crime, immigration, and family law tend to see the lowest premiums.
Should you get additional cover for your new law firm?
You can certainly get more cover for your law firm. It is often the case that firms doing high-value corporate/commercial work or high-value conveyancing will take what is called “excess layers”.
These are not an SRA requirement. However, they are often taken by firms to show clients they have adequate cover to act on a particular transaction in the event something goes wrong.
Having increased levels of cover can also help firms when tendering for large projects where the client may insist on the law firms having a certain level of cover.
On the flip side, if you only have the basic £2 million or £3 million cover and you are approached by a client wanting you to act on a transaction that exceeds these levels, you do need to think carefully about whether you should “top up” your cover at that point.
If you do decide to proceed, you must make the client expressly aware that the cover you currently have could potentially not cover them fully in the event something went wrong.
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Your questions answered
How long does it take to start up?
The answer to how long it will take to set up a new law firm is uncertain.
The SRA’s authorisation process usually takes around 90 days. However, this depends on which officer you get and their individual workload.
Other factors which usually affect timeframes are notice periods of individuals or teams.
If working from home is possible, then the absence of arranging physical premises can make things happen quicker.
Depending on the speed of response from the SRA, we say it takes 2-3 months from instructing us. Our established dialogue with the SRA means we can move as quickly as you would like.
If everything is in order, the SRA can respond quite quickly to applications (on occasion in a matter of weeks). Over many years, the SRA has become familiar with the new law firm applications that we regularly submit.
Do consider, you may need to do some online training. Especially if you don’t have any management experience or in taking on the COLP or COFA role before.
What is the cost of setting up a new law firm?
The cost will depend on:
- your chosen business structure,
- areas of work you are looking to undertake,
- how you want to do it and
- when you apply.
For example, for a recognised body or sole practice, the setup fee is from £200. For licensed bodies, the setup fee starts from £2000.
Moreover, the total application fee for starting a new law firm depends on factors such as:
- your proposed entity,
- whether you will hold client accounts, and
- when you apply.
Our team will be able to inform you of the exact amount after your initial discussion with Brian. Brian is the Regulatory Compliance Advisor.
Why should I choose you to help me?
In addition to taking on legal cases, there will be a lot of non-legal activities you will need to undertake.
Some areas can be outsourced and everything our network of service provides is at your disposal.
Our support means you can focus on fee earning. While growing your firm as well as other tasks will be looked after.
Depending on how many partners will be involved in your business, there will be a need for clarity around certain roles. Who will take the role of Compliance Officer for Legal Practice (COLP), and Finance and Administration (COFA)?
The COLP should be champions of risk management and compliance within your firm. They will have responsibility for its systems and controls. The COFA is responsible for all things financial.
Who will keep up to date with requirements such as compliance with anti-money laundering laws? And what will be the arrangements for supervision and training?
We can provide support and guidance in these key compliance areas.
We can also help you create a viable business plan. This is vital for developing the new firm for the longer term. It should be based on there being a sustainable and growing market for your services in which you are confident that you can compete in your area of work.
Who are Coverex Insurance Brokers?
Coverex Brokers provides many areas of protection for your business in the event of any clients claiming the service they have received is inadequate. Coverex believes in putting you first and will always go the extra mile to understand you, your requirements and your business needs.
Visit Coverex Brokers’ website for more information.
Obtain PI Insurance for your law firm
Speak with an insurance broker to obtain a competitive professional indemnity insurance quotation for your firm.
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