Claims, trends and targets
Key trends in claims experience and current risks identified in the latest Master Policy Annual Report
Numbers of intimations
The number of Master Policy intimations is a key indicator of the effectiveness of the profession’s risk management. In the most recent completed insurance year (2012-13), the number of intimations reduced significantly from 2011-12. This was due largely to a reduction in property/conveyancing-related intimations, including notifications of lender-related circumstances arising from allegations of failure to comply with certain of the reporting requirements set out in the CML Handbook. The number of intimations is small when compared with the number of transactions/cases conducted by Scottish solicitors each year, and reflects well on the profession’s management of key operational risks.
Property/conveyancing intimations continue to dominate the claims experience both in number and value as they have done for several years. Lender-related intimations, mainly arising from failure to report in accordance with the CML Handbook, remain by far the most significant feature of the claims experience, reflecting the level of borrower default during the economic downturn and losses on repossession incurred by lenders.
The number of litigation-related intimations has been falling over the past five years. As in previous years, most intimations in 2012-13 arose from personal injuries actions.
While the litigation claims experience as a whole has tended to be dominated by time bar intimations, particularly failure to raise personal injuries actions within the relevant limitation period, the number of such intimations has been gradually reducing in recent years. The low number of time bar intimations (compared with the number, say, 10 years ago) is again a favourable reflection on the profession’s management of this key risk.
Wills, trusts and executries
In contrast to the litigation claims experience, the number of intimations arising out of wills, trust and executry work has been rising over the past five years. Having said that, the number is relatively insignificant when compared with the number of property/conveyancing intimations. At the beginning of the economic downturn, insurers feared that a reduction in property values coupled with volatility in the stock market would lead to an increase in claims against solicitors administering executries and trusts, arising from allegations of delay in realising or transferring assets with resulting loss to the estate or to beneficiaries. Allegations of delay in realising/transferring assets have not been a frequent feature of claims in this practice area.
Another of the insurers’ concerns during the economic downturn was that the failure of businesses and commercial deals could result in an increase in corporate/commercial claims against solicitors, as clients sought to revisit advice and drafting. The insurers feared that the finger of blame would be pointed at professional advisers, including solicitors, on the basis that risks had not been flagged or properly addressed and that contracts failed to provide effective protection for the client.
In the event, the number of corporate/commercial-related intimations, after a period of stability, has reduced over the past two years. Part of the explanation for this may be reduced activity in this practice area because of the downturn.
Corporate/commercial transactions tend to be of high value and, no matter how infrequent, when claims do arise, they tend to be costly. However the annual report shows that the overall cost of corporate/commercial intimations over the past five years has been relatively insignificant when compared to the cost of property-related intimations.
Claims involving allegations of external fraud or other dishonesty (i.e. on the part of clients or other parties) have become an increasingly significant feature of the Master Policy claims experience in recent years.
There have been instances of:
- mortgage fraud by borrowers, identity theft/fraud, and other scams impacting on lenders;
- a commercial loan transaction where the borrower’s solicitors turned out to be a fake law firm (a fraudster masquerading as a law firm) – the outcome being that substantial loan funds were transferred to the fraudster’s bank account and the lender left out of pocket with no valid security;
- a fraudster intercepting email communications between solicitors and the beneficiary of an executry estate and providing instructions for payment of a legacy into the fraudster’s bank account.
More recently, and chillingly, there have been cases where fraudsters have gained access to firms’ online banking systems, partly by causing malware to infect firms’ computer systems and partly by masquerading as bank employees to persuade cashroom personnel to disclose confidential PIN/password details, in order to steal client funds.
In the past few months risk alerts have been issued by Marsh and by the Society. The key message is – never disclose PINs/passwords.
For reasons that will be obvious from the Annual Report and the comments above, the Society’s risk management targets for 2014 continue to be focused on:
Lender claims/CML reporting failures
As already mentioned, this category of claim has been by far and away the most frequent in the Master Policy claims experience of recent years, and the Society considers it important to continue to raise awareness across the profession of the reporting requirements of the CML Handbook to minimise the risk of future claims.
The incidence of external frauds/scams and potential for costly claims justifies this risk management target. As mentioned above, risk alerts continue to be issued to all practices.
Practices need to have effective information security policies if they are to maintain the security and integrity of the data in their possession and prevent external frauds. Advice already given to the profession includes:
- complying with firms’ own policies and procedures on information security;
- locking computers and other electronic devices with secure passwords, and using encryption technology where possible;
- maintaining awareness of key risks and risk controls by reading and acting upon risk management articles and risk alerts.
Undertaking the Marsh eLearning course on information security, which is available on the Marsh website for Scottish solicitors, is free of charge and provides 0.5 hours' CPD.
The annual report is available to solicitors on the same website – www.marsh.co.uk/scotlaw. To access the website, you will need your firm’s username and password. If you need assistance with this, please contact email@example.com
Russell Lang and Marsh
Russell Lang is a former solicitor in private practice, who works in the FINPRO (Financial and Professional Risks) National Practice at Marsh, global leader in insurance broking and risk management. To contact Russell, please email Russell.firstname.lastname@example.org
The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.
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