Law firms have been hit with huge increases in the cost of professional indemnity insurance as the economic downturn fuels fears of a spike in claims.
Most firms were forced to accept increases of 20-30pc last week as the October renewal date for their professional cover passed, insurance brokers said.
Professional indemnity policies cover the cost of claims made against lawyers for mistakes or negligence in their work. The increases add to the strain on the profession as some staff face redundancy at City firms including Ince, Reed Smith, Irwin Mitchell and Bryan Cave Leighton Paisner.
John Wooldridge, a professional indemnity insurance broker at Howden, said: “The rate increases have been brutally imposed on all law firms, regardless of size and regardless of work split.”
Bruce Hepburn, chief executive of insurance adviser Mactavish, estimated that a firm with £25m turnover could now have to pay between £750,000 and £1m for cover.
Insurers have been increasing their rates after premiums fell to levels that were seen as unsustainably low while payouts relating to investment schemes and escalating ground rents increased, said Mr Wooldridge.
Many insurers are restricting the amount of cover they will sell to lawyers, brokers said.
Ben Waterton, an executive director at Gallagher, said this month’s renewal season was the most difficult in his 25- year career.
He said: “The key challenge has really been one of competition … To a large extent, that’s evaporated.” It comes as the legal industry prepares for an increase in claims due to the economic crisis.
“Whenever there’s a recession, claims against the professionals, lawyers in particular, go through the roof,” Mr Wooldridge said.
The challenge of rising premiums is not unique to lawyers as financial advisers, architects, engineers and surveyors have all seen increases in recent years, brokers said.