The Law Society has warned that law firms are facing an increase in their Professional Indemnity Insurance premiums by up to 30% this year. With the majority of firms renewing their PII on the traditional date of 1st October, now is the annual rush for brokers and underwriters to process policy renewals.
A combination of the COVID-19 pandemic, uncertainty around the outcome of Brexit negotiations, a potential recession and an already hardened PII market in 2019 could make this one of the most challenging years for solicitors since the move to open the market in 2000.
Alongside general uncertainty around the cash flow of firms due to the COVID-19 pandemic, reductions in WIP and caseloads, it is imperative that firms undertake some planning with their trusted advisors to assess how the next 12 months look from a cash point of view, especially with a rising and significant cost such as the PII renewal.
One potential way of easing the burden on cash flow could be to take out finance in order to pay the rising cost of the insurance. Whilst many insurance companies or lenders offer premium finance as a way to spread the cost, firms should also consider the Coronavirus Business Interruption Loan Scheme (CBILS) as a way to spread the cost of the policy.
CBILS provides eligible businesses with access to loans of up to £5 million, repayable over a period of up to 6 years. The UK government will meet the cost of fees and interest payable within the first year, and most lenders do not require the borrower to begin making any repayments until the second year of the agreement. This scheme closes to new applicants at the end of September 2020 so if we move quickly there is just about sufficient time to explore using this as an interest free way to pay for PII.