The importance of due diligence has been demonstrated in the market with previous instances of insolvency affecting ATE insurance providers. In a recent case, the insurer stopped writing new business in 2017 confident at the time of a ‘solvent’ run-off. Whilst they couldn’t meet their required solvency margin they were convinced that they had more than enough capital to pay claims, however this created uncertainty on whether claims would be paid. As a result, solicitors who provided the products were unable to take out new or replacement policies as the provider was relying on premiums for successful cases to pay claims. 

In December last year, the provider announced that all ongoing policies would be ‘disclaimed’, so no further claims would be paid. After three years of uncertainty this left the solicitors with the unenviable task of finding new and replacement policies. This would undoubtedly  take some considerable time and effort to find a new insurer prepared to take on the historic financial exposure as cover would need to be backdated to provide clients with full protection. 

In times of uncertainty it’s therefore crucial for solicitors to do the necessary due diligence on ATE insurance providers to understand where their capital is coming from, as well as their background and credentials. Some key areas for solicitors to consider during this process include: