The Law Society has revealed that more than one in five law firms (22 per cent) have been targeted by scammers in the past year and that money was successfully stolen from client account in eight per cent of these cases.
The latest scam figures were included in the Society’s annual professional indemnity insurance survey. The study, conducted amongst 560 law firms with up to 25 partners, painted a positive picture of the market, with falling average premiums.
However, evidence from the nine law firms that fell victim to the scammers showed that partners had to make up the deficit in a couple of cases and that banks and insurers had made up the loss, at least to some extent, in others.
“In the worst-case scenario, a scam can result in a firm having to close and partner bankruptcy, if the firm cannot meet its regulatory obligation to make good the client account within a short period of time,” the Society warned.
It said there were “isolated incidences” following a scam, where an insurer raised a firm’s premium on renewal and raised the cost of its run-off cover.
“There are also indications that some insurers, when setting premiums at renewal, will now ask firms what preventative measures they have taken to protect against criminals targeting client accounts, including what security and IT systems they have in place.”
In general, the survey found that the average premium for law firms was eight per cent lower in the current indemnity year than last at £27,809.
However, the median cost of run-off cover for all firms increased from 250 per cent to 300 per cent of annual premium, increasing the “barrier to retirement” for some partners.
Jonathan Smithers, President of the Law Society, said firms should take advantage of “favourable conditions” and shop around for indemnity cover.
“It is vital firms keep their risk management up-to-date, in particular in relation to scams, if they wish to continue to benefit from lower PII premiums.
“Run-off cover is a necessary protection for clients, employees and for retiring solicitors. The hike in run-off cover and the closure of the Solicitors Indemnity Fund (SIF) in 2020 create challenges for partners in small firms wishing to retire.
“For the same reasons, closing down a firm will require careful forward planning. The Law Society is considering whether there are any viable options to replace the SIF beyond 2020.”
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