One Missed Day Makes Merger Costs Soar – Broker Claims

on 22 February, 2011 Email this Email this - Print this Print this

Law practice merger costs are frequently far higher than they should because of avoidable poor planning, claims broker Jason Cobine of Cobine Carmelson, the legal insurance brokers.

Far too often the merged firm obtains cover which looks good, because it is markedly less than the combined premiums of the component practices, and so is seized as a good deal. In reality, one day spent carrying out a thorough risk assessment , prior to seeking quotes, would reveal bad practices and elementary solutions  resulting in a much more favourable quote.

This uncritical rush for cover is often aggravated by the need to meet the PII deadline, but is further compounded by the subsequent failure to address the undetected poor practices.

Fast forward four years, and a vicious spiral has developed; the bad practices have led to claims which have impacted on the premium, and thence upon the practice profits, morale is falling because the firm’s reputation has been tarnished by the claims and business is down as a result.

This lack of a careful risk assessment is a recurring theme when talking to Jason who has been insuring lawyers for the last fifteen years. Indeed, Jason argues that the best time for a practice to speak to Cobine Carmelson  is directly after a PII renewal, when the memories of the application problems are still raw, giving the firm time to rectify the problems and prepare for the next application in an orderly manner.

Unscrupulous brokers know that if they leave the notification of the renewal as late as possible, then the client has less time to shop around for a better deal or to implement changes to improve the risk assessment analysis. August is already too late to do anything effectively. Early applications stand much more chance of success with the added advantage of time to manoeuvre should problems emerge.

If this is true for the multi-partner practice, it is even more relevant for the Sole Practitioner (S.P.).At a time when many are wondering if the SP can survive as a part of the legal scene, in the face of the ever steeper increases in PII premium, Jason suggests that the secret is all in planning.

He has no problems finding cover for his SP clients, providing they keep to his dictum of careful risk assessment in plenty of time; however, he believes many will need some help because the way insurance is underwritten and sold, has led to the downfall of many practices. The ‘one size fits all’ mentality does not help; single policy wording does not assist the SP in managing their risks, and there is a good case for a range of rates for a range of risks.

Bearing in mind that some of Cobine Carmelson’s advisors were among the group who drew up the solicitors insurance requirements over thirty years ago, he thinks it unlikely that the calls, within the profession, for a less ‘gold-plated’ policy are likely to be heeded.

He contends that solicitors who have managed their risks wisely will always be able to get cover; it is just a shame that more do not seek advice. Good risk management always makes for a more profitable practice. However, the removal of some ‘goldplating’ might be advantageous with the emergence of the mega-firms, if the legal profession is to avoid the situation that the Accountants currently face over conflicts of interest in the audit field among their mega-practices. It would cause more firms to manage their risk more effectively.

It is the diversity of needs for cover that fascinates Jason, PII is only part of Cobine Carmelson’s  business, which covers insuring contracts, debts, and creditor liabilities, tribunals, asset protection, I.P, art & collection insurance, litigation expenses for CFAs (before and after the event), and, of course, property insurance for the practice property.

He thinks that the current Law Society suggestion for abolishing the ARP  and making firms which cannot find cover, within three to six months, amalgamate or go out of business is “Probably ‘mission impossible’. Years of mismanagement will take more than three months to unravel, and so the firm taking over the business will have to take on the problems and the attendant cost.”

Nor does he think an easing of the economic situation will ease the PII problem, he foresees that almost every other sector will improve, but the problems inherent within the PII market will remain, the recession having simply highlighted them. Once again he returns to his theme, “Talk to me early, carry out risk assessment thoroughly, and the future remains bright for law firms of any size.”

Roger J Gould. 14/2/11

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Topics: Hot Topics · Legal Insurance · reducing overheads · Solicitors insurance

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