Risk Update

UK Law Firm Risk Resources — SRA AML/Client Acceptance Videos and Templates, Insurer Insights on Law Firm Losses

The SRA kindly posted videos and resources from its recent event: “Compliance Officers Virtual Conference 2023” —

Travelers Insurance shares: “UK: What’s Behind Large Losses in Law Firms?

  • “In a time of economic instability, a law firm that experiences a large loss may find itself in an especially difficult position. In addition to having to ride the waves of the current business environment, the firm could also face higher insurance premiums following the loss, then find less competitive options for professional indemnity cover as a result.”
  • “Mitigating large losses can help smooth the waters for firms. Insurers, of course, also have a vested interest in helping their law firm clients anticipate their risks and take action to contain them – and the loss patterns they identify can say a lot about the exposures of a profession.”
  • “Large losses are persistent, becoming more costly, and happen for law firms of all sizes: Smith noted that there have been a high number of claims for large losses in recent years and the total severity of those claims has been trending up. While one might assume large firms are responsible for the largest losses, these claims tend to spread across all sizes of firm, not just the large or small firms.”
  • “The top five areas driving large losses in law firms appear consistently over time: From 2001-2023, commercial work represented 30% of claims notifications and 50% of damages claimed. The remaining four areas included commercial litigation, commercial property, residential property, and trust & probate. However, commercial work remains a clear outlier in the severity and frequency of its risks to firms.”
  • “There are patterns in the kinds of errors that lead to claims for large loss: Firstly, large loss cases tend to involve more failures of advice than in the overall book. Secondly, the most frequently notified errors pertain to retainer management failure. These errors are often very simple, such as not following instructions, taking the wrong step in a process, or missing a time limit. Finally, dishonesty has been on an upward trajectory since 2020 and involves a mix of methods, such as identity theft, fraudulent sellers, or the interception of payments and the changing of bank details.”
  • “Mapping legal work areas onto errors reveals more specific risk management targets: Commercial work presents the main challenge for firms looking to reduce errors in retainer management, drafting and advice as all three areas are claim hotspots. Commercial property and commercial litigation generate claims in retainer management and advice. In residential conveyancing, claims involving dishonesty (whether the dishonesty is by an employee or a third party) are a hotspot where firms could focus their attention.”
  • “Retainer management errors, for example, tend to be simple mistakes and tend to be the result of human error, such as distraction, in turn caused by stress, pressure or fatigue. Where slips and lapses in procedure occur, a firm should ask whether this is possibly a reflection of the culture of a firm as a whole and whether steps could be taken to address or improve the work environment. While many firms have taken steps to support the mental wellbeing of their employees, recent research has found that these changes haven’t gone deep enough. Indeed, while nearly three-quarters of law firms report having initiatives in place to support employees’ mental health, this year there has been a 24% increase in the number of people contacting LawCare, the mental health and wellbeing charity for legal professionals.”