Handling crisis

This resource was also featured as a column in the March 2015 issue of LPM magazine. To read the issue in full, download LPM magazine. 


Recent years have seen dramatically increasing levels of press coverage of the solicitors’ profession as one in crisis, squeezed by government and regulator, and increased competition. Much of this may be true, although for each practice which has struggled or failed one can point to another that has developed and prospered through recession and beyond. Within any profession there is a tendency to be insular.

All businesses in all business sectors suffer crisis great or small at some point. There is no reason to be embarrassed by that. The pride is in preparing for and dealing with crises as they arise.

Most firms which have failed have overwhelmingly done so for one of two reasons – inability to obtain professional indemnity cover may be becoming a more fashionable terminal symptom, but running out of cash has always been the principal driver of failure, and still is.

Solicitors’ businesses do not generally fail through lack of profitability – lack of profitability is one warning sign of a cash crisis which will follow if warnings are ignored.

Categories of crisis exist that cannot be foreseen or forestalled, however, even with the most robust systems. If a trusted partner or senior employee is determined to perpetrate deeds of serious misconduct, no management system can prevent them.

Fortunately not every solicitors’ business experiences fraud. Everybody faces notifiable events at some point, though.

Brokers encourage early notification and a tendency to over-notify, if anything: premium quotations are not generally notification-sensitive. (If, despite all best efforts, the claims record has become such that renewal is going to be a significant challenge, it is vital to engage as early as possible in discussion with brokers, giving them full details. The longer they have in advance of the renewal date the more options they will have and the more scope to explain your case to the insurance market.)

It is essential that notification is not considered the end of the matter from the insured’s point of view. Professional indemnity insurers utilise the services of an array of accomplished specialist legal advisers. They can, though, only operate from the factual information they are given.

More importantly still, an underwriter’s interests do not necessarily coincide with those of their insured. Underwriters deal in numbers, not reputations or preservation of goodwill. The numbers they deal in are also considerably bigger than ours: settlement of a claim at a certain level may make sense to them, but it may lead to a serious hike in premiums for the insured.

The job of dealing with claims made remains with insurers and their advisers and they will ultimately make the decisions under the rights of subrogation they enjoy.

They nonetheless invariably welcome proactive and constructive input from their insureds into the claims process, which can steer it to an outcome more favourable to all.

It has never been easy to administer a solicitors’ practice – and there’s no reason to suppose it will get any easier. If we can embrace the realities of regulation as a means of tackling some of the significant business challenges we face, at least we swim with the tide – which is preferable to the increased risk of sleeping with the fishes

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