Fieldfisher and HFW have set up captive insurance subsidiaries in the latest example of large law firms seeking out cost-effective forms of professional indemnity cover.
Fieldfisher has set up a Guernsey-based captive insurer to cover its relatively low-cost claims, according to one person with knowledge of the situation. For larger claims it continues to use external providers, listing HDI Global Speciality SE-UK, Starr Insurance (Europe) Limited and Axis Speciality Europe SE on its website. The firm declined to comment.
HFW has also opted to self-insure through a captive, in relation to its excess only, under its professional indemnity policy, according to someone with knowledge of the situation. The firm declined to provide further information.
Captive insurance vehicles are a form of self-insurance in which the firm establishes a completely self-owned subsidiary to provide coverage solely to its parent law firm.
Firms are then able to set aside an appropriate amount of revenue based on its previous claims experiences, to cover the costs of any future payouts.
It comes as Fieldfisher and Mishcon de Reya recently had insurance cover ended by insurance company QBE after the firms tried to build group claims litigating against the insurance industry in 2020.
It also has cost saving benefits. In October 2020 Linklaters opted to self-insure as professional indemnity insurance costs soared and firms struggled to get appropriate levels of cover at affordable prices as costs rose around 30%. Linklaters’ captive insurance vehicle is also based in Guernsey.
Such methods of self-insurance generally cover smaller-scale claims where firms can appropriately set the money aside without a significant business impact.
One London partner at a large firm said that the ability for firms to cover claims themselves is greater than anticipated. They said: “For a reasonably sized firm with £500 million revenue, that’s £500 million cash coming into the business every year. Yes you’ve got lots of costs, but if your margin is 40% for example, you’ve still got a chunk of hundreds of millions of pounds to use on possible claims made against you. It would hit partner profits, but it’s doable.”
