For anyone involved in the property market (lenders or otherwise), it is perhaps no secret that conveyancers continue to be under tremendous pressure: many are expected to deliver increasing volumes of work to ever tighter deadlines, while many firms face a skills shortage and a reputation for poor customer service. Unsurprisingly, within this environment, mistakes do happen. As the sector as a whole strives to better manage its risk and maximise return, it’s worth remembering that a number of firms are now heading into the one of the highlights of the season: namely, the race for renewal of their professional indemnity insurance (PII).  While this maelstrom may not affect the lending market directly, the wider challenges it represents are worth bearing in mind amongst lenders and facilitators alike.

A changing landscape

Since October 2013, the introduction of insurance policies of alternative lengths has enabled legal firms to switch their PII renewal date from the traditional October deadline. While it seems that the majority of legal and conveyancing firms have adhered to their October renewal date, a growing number are choosing to make the switch. According to research by law firm O’Connors, about 21 per cent of firms have switched to longer policy periods. More are likely to follow once the insurance market adjusts to no longer having a hard and fast annual cycle by which it has to operate. For smaller conveyancing firms, or those which may specialise in riskier, contentious or niche work, switching to a quieter time of year could make sense: an underwriter who has more time to evaluate their submission is more likely to give detailed consideration to a firm’s risk profile and to its pricing.

Whatever renewal time is chosen, it remains critical that sufficient cover is in place. The deadlock over reforms to the minimum level of PII cover required continues. The Solicitors Regulation Authority (SRA) continues to lobby to lower the minimum threshold to £500,000 – saying that this will cover the vast majority of claims, help smaller firms, and introduce more competition into the market. However, this stance has been rebuffed by the Legal Services Board, which says the current level of £2m (£3m for incorporated firms and LLPs) should remain in place as a lower amount of cover would be insufficient for many firms and is unlikely to result in any significant drop in PII premiums.

Conveyancing remains the riskiest area of legal and professional practice in the UK. According to figures published by the Legal Ombudsman, one in five of the complaints it receives relates to a residential transaction and the number is rising-1,476 complaints were received in 2013-14, a 24 per cent increase on 2012-13. A single successful claim can have a major impact on a smaller firm given the relatively high values associated with property transactions. In its 2014 Report to the Law Society of Scotland, Marsh, the broker for the Master Policy, reported that for the year 2012 to 2013, conveyancing related claims accounted for 75 per cent of all PII claims on the policy. The report details that lender-related intimations, mainly arising from failure to report in accordance with the CML Handbook, remain by far the most significant feature of the claims experience, reflecting the level of borrower default during the economic downturn and losses on repossession incurred by lenders. Law firms with heavy weightings in conveyancing transactions and PII insurers alike would agree that conveyancing negligence risk transference is an option which should be explored with a view to improving firm and book performance.


The concerns for lenders


Lenders in this market have a role to play in helping their panel firms to better manage their exposure, mainly by encouraging them to explore additional risk management solutions above and beyond PII. Title insurance for instance - originally conceptualised in the US as a means of managing conveyancing risk without proof of negligence prior to claim acceptance - is often used in the UK by volume conveyancers as a PII surrogate to manage latent or unforeseen transactional issues such as title defects or burdens such as restrictive covenants. There is also an inference based on PII proposal form questionnaires that insurers deem title insured risks as more attractive and tend to reflect this in lower PII premiums.


In addition, if the SRA succeeds in its campaign to drop the minimum PII threshold to £500,000, lenders are likely to be exposed to a more ‘uncomfortable’ level of risk which will require additional management. Separate insurance is one option, although depending on the level of cover required this may result in costs having to be passed on to or shared with borrowers. As we are likely to see a future world of reduced claims, the use of other risk management solutions alongside PII can not only limit a lender’s exposure, but can also help to reduce the overall cost of lending.  


Chris Taylor is Chief Executive of Titlesolv, a leading title insurance and property risk solutions provider in the UK and Ireland.


Titlesolv is the trading name of London & European Title Insurance Services Ltd, authorised and regulated by the Financial Conduct Authority.