Warning signs

Risk management and professional indemnity (PI) are not glamourous subjects. Spending time thinking about them does not directly generate fees or new clients. When things are going well, as was the case from 2003 to mid-2007, resources are stretched and clients want every deal done yesterday. Throw in an overheated recruitment market in which the firm that blinks misses out, and the competitive pressure of having to race into every new, emerging market, and firms could be forgiven for never thinking about their professional indemnity at all.

However, to their credit, this has not actually been the case. As our survey of the UK’s largest 150 firms by turnover (completed in conjunction with leading insurance broker Marsh) shows, firms are thinking ever harder about how they can mitigate the risks they face. Partly this is for reasons of self-preservation, as soaring deal values far outstrip anything that an insurance policy could ever cover. But this does not detract from the fact that, despite working at break-neck speed over the last few years, firms have generally done a good job of improving their risk management procedures and risk profile.

Nevertheless, as the economic climate deteriorates and loss-carrying lenders seek to apportion blame, there remain plenty of reasons for firms to be nervous. Though they have thought about risk management during the boom years, some are thinking about it even more now that their clients are becoming litigious. And actions that made commercial sense in the heat of the moment a year or so ago might suddenly take on a different hue if there is a recession. Unlike the last downturn, during which litigation was more narrowly focused on the technology market and the accountancy profession, the blame game emanating from a new recession is likely to have a wider ambit that may well include legal advisers.

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