THE COST of professional indemnity insurance is the biggest difficulty facing solicitors, according to a survey.
The insurance issue is followed by reduced turnover, lower profit, a decreasing number of new files and increased client expectation of reduced fees, less earnings, staff layoffs and increased efforts to generate new business.
The survey of 176 firms was carried out by an independent agency for the Dublin Solicitors Bar Association, with the vast majority of responses coming from smaller firms of 10 solicitors or less.
The survey was organised by the largest of the solicitors’ bar associations, which are local groups linked to the Law Society.
Almost two-thirds of respondents reported reducing their salaries over the downturn and, in the three to 10-solicitor firms, reduced or eliminated bonuses.
Almost half the firms reported changing utility providers, writing off bad debts and seeking to extend their specialities. They also engaged in improved risk and practice management.
A high proportion still reported residential property conveyancing as their main expertise, despite the property market collapse.
This was the case for 84 per cent of the very small firms, and 64 per cent of the larger ones. Wills and probate, litigation and personal injuries made up much of the rest of the work.
More than half the very small firms (55 per cent) stated they were pessimistic, though this figure fell to 28 per cent for those with more than three solicitors. Yet only 13.5 per cent responded to the crisis with a merger or takeover, while 8.6 per cent had sought to share overheads.
This can be explained by obstacles created by the need for professional indemnity insurance, according to the president of the Dublin association, Stuart Gilhooly. “In a takeover, there could be risks in the files you take over, and the insurance company will want to look into the files. This could mean a big increase in premium,” he said.
Referring to insurance as the single greatest issue for solicitors, he said that, typically, a small practice of one or two solicitors would pay €10,000-€20,000 annually, while a practice with up to 10 would pay between €20,000-€60,000. This could double if there was an outstanding claim, he said.
The issue of professional indemnity insurance has dominated debate within the Law Society and local bar associations over the past two years, as premiums have vastly increased as a result of a big jump in claims caused by malpractice by solicitors, mainly in property-related cases. This led to the main professional insurance body, the Solicitors Mutual Defence Fund, seeking financial support from the Law Society earlier this year to allow its orderly wind-down over 10-15 years.
There has been disquiet in the profession about the fact sloppy and unethical practices by a minority of solicitors in their property dealings has contributed to a crisis, leading to loss of earnings and unemployment for about 2,000 solicitors. Mr Gilhooly acknowledged that some solicitors were still making money, especially those whose practices dealt with litigation and insolvency.
However, most solicitors in the firms surveyed had taken pay cuts, he said, suggesting that they were more inclined to do this than make staff, many of whom had worked with them for years, redundant.