London, 1 October 2005 – Law firms in England and Wales have been required to purchase higher levels of compulsory professional indemnity insurance at this year’s renewal, but have not experienced an increase in overall spend due to lowering premium rates, according to Aon Limited’s professional indemnity specialists.  However, there is no guarantee that premium rates will continue to enjoy the current levels of stability as the insurance market responds to fallout from Hurricanes Katrina and Rita.

Following 1 October, the profession’s common renewal date, Aon offers the following observations on how solicitors have been affected this year:

• Law firms have this year been required under Law Society regulations to purchase an increased compulsory level of insurance of £2m (£3m for Limited Liability Partnerships).  However, fierce competition within the insurance market has caused premium rates to fall, and therefore law firms have not had to increase their overall spend as a result of the new regulations.  In most cases, law firms are paying less for cover than they did last year.
  
• The Law Society has also brought in changes to the Series clause this year, in an attempt to aggregate similar claims.  This has not impacted the cost of “top up” coverage layers (i.e. those over the compulsory £2m level), as had been anticipated.
  
• Premium rates have reduced by up to 20% for both the compulsory £2m layer and additional top up cover (above £2m).  This continues the downward trend experienced last year, and brings the rate reductions for law firms in line with those experienced by other professions.
  
• The total amount of premium paid into the market for the compulsory £2m layer of cover is likely to be in the region of £220 million this year.  The equivalent figure for the compulsory £1m layer of cover in 2004 was £234m.
  
• As a result of competitive pricing most law firms are opting to transfer risk to the insurance market, rather than retaining it themselves through captives or other self-financing vehicles.
  
• Following two years of lower premiums, law firms – particularly at the large end of the profession - are looking to increase their limits and reduce their excesses. 
  
• Conversion to LLP status (Limited Liability Partnerships), which has been increasing, has made little difference to the limits purchased by law firms.  At the upper end, limits of £200 million are still commonly sought and capacity at this level and higher is available. 
  
• Some US firms are also renewing their professional liability insurance on 1 October.  Whilst UK firms typically buy higher levels of insurance cover, their investment in protection goes further - in terms of higher coverage and lower excesses - than their US counterparts.  Despite greater risk exposure in the US, British firms entering the region are being hit less hard than American firms expanding into the UK.
  
• The number of firms in the Assigned Risks Pool has traditionally been low – given this year’s renewal environment, this is unlikely to change.
  
• The impact of Hurricanes Katrina and Rita has yet to be quantified.  However, if the reinsurance market is adversely affected, there could be a knock-on effect in the insurance market and insurers may need to recoup costs.  Going forward, solicitors may in turn experience increased premium rates at next year’s renewal.  This would reverse the downward trend that has been enjoyed over the last two years.

Nicholas Gilbert, Director at Aon’s Professional Risks Division, said:

“Despite having to buy an increased level of compulsory cover, UK law firms are generally paying less for their professional indemnity insurance this year.  However it is not yet certain whether this downward trend will continue; the impact of Hurricanes Katrina and Rita could potentially destabilise the market, causing premium rates to increase in 2006.

“Pricing and availability of cover is also affected by claims experience.  Should it exceed the premium income paid into the market, we would expect rates to rise as underwriters would be making a loss.  In order to maintain long-term stability, firms need to prioritise risk management, look to control their claims records and take positive steps to introduce or maintain a culture of risk management.   Insurers also have a role to play in stabilizing the market, and must opt for quality above volume. 

“This year we have seen many firms postponing their insurance renewal until the last minute.  We believe that it would be in the better interests of the profession for more than one renewal date per year to be introduced.”

Notes to Editors

About Aon
Aon Corporation (www.aon.com) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 52,000 professionals in its 600 offices in more than 120 countries.  Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results, depending on a variety of factors.  Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, resolution of regulatory issues, including those related to compensation arrangements with underwriters, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, and the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure.  Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is contained in the Company’s filings with the Securities and Exchange Commission.