Marsh is urging brokers to ensure that their solicitor clients renew their professional indemnity cover as early as possible this year. In particular, brokers with clients of four or fewer partners should take every step to avoid the scenario of going into the assigned risk pool.

Sandra Neilson-Moore, Marsh's European practice leader for law firms' PI, said: "Insurers are going to be more choosy than they were in the past. It would really be in the best interest of every size of law firm to send their proposal forms in early, ensure their terms early and to get bound early because things cannot get any better than they are right now and could very well worsen."

Since the switch to an open market in 2000, the deadline for solicitors' professional indemnity cover passes on one day annually, currently 1 October. With many brokers having at least one solicitor as a client, maintaining a strong relationship has always been a key way of generating introduced business.

Expensive option

The ARP guarantees solicitors the professional indemnity insurance they need to continue to practice, though at a price. It is not unheard of for a firm with £6m in revenue to be quoted £1.3m in the assigned risk pool for £3m of cover. Quotes outside the ARP would be more likely to be around £200,000.

Neilson-Moore continued: "As the insurers fill up their books with the business that they want, they will ultimately close their doors and say 'that's it - even if you are a nice risk - we have all we want and we are not writing any more'. Firms that leave it to the last minute could very well find themselves with no options and, if they have no options, they wind up in the ARP."

Whereas last year insurers were fearful of prices falling, according to Andrew Jackson (a managing director in Marsh's UK PI practice specialising in small and medium-sized legal firms), the market is now hardening, especially for the smaller firms.

"We saw evidence of the market turning and hardening last year. The rhetoric, without exception, from those qualified insurers this year is that they are not making money and that there needs to be an adjustment to put profitability into this segment of the business.

Limits reached

"That is being made clear by some of the writers saying 'that is enough and we get out. We have to take drastic action for sole practitioners to four-partner firms'. We saw evidence of that last year."

Simon Lovat, divisional director of the UK PI division at United Insurance Brokers - which specialises in firms with between two and ten partners - also highlighted the need to complete transactions early.

He said: "It is a really tough market. Insurers are not looking to grow their accounts and leaving it late opens up your chances of falling into the ARP. We would like to have our renewal book concluded by the second week in September. We believe, after this, insurers may not look to offer products.

"We do not believe there are going to be many new entrants. Rather than leaving the market, insurers are drastically reducing their positions and overall the market will decrease."

Over 80% of the solicitor market by volume of companies comprises small firms with four or fewer partners. While there are 26 qualifying insurers registered at the Solicitors Regulation Authority, only a handful write for this segment of the market, creating a specialised and narrow market.

Jackson continued: "Insurers are under great pressure with losses and anticipated losses in the recession. Their investment incomes are down and their reinsurance costs are looking up. They are in that sort of perfect storm."