England: Rise in cost of indemnity cover leads to law firm closures

Researchers said 65 law firms in England and Wales shut shop in the year to September 2020 – as compared with 11 in 2016-17.

Audit firm Mazars, which undertook the research, said that 63 firms had closed in 2020-21 but that not all possible closures had been reported and that the true figure was likely to be greater than in the previous year.

Professional indemnity insurance premiums have seen a sharp rise over the past year analysts said and small and medium-sized practices have been particularly affected, with an average increase of 27 per cent in premiums.

Mazars said that the trauma of the pandemic has led to a “hard market” for indemnity insurance as losses from business interruption has caused insurance premiums to rise.

“Increases in premiums have come as insurers looked to reduce their exposure to what they consider a largely unprofitable market or even quit it entirely,” said Mazars. “Combined with a lack of new insurers entering the market, that has left law firms with limited options for finding a better deal.”

Julien Irving, a partner, said that “the sharp rise in the cost of professional indemnity insurance this year has proved too much for some law firms. The past year’s jump comes on top of many years of rising premiums that have long been a struggle to meet for some firms”.