The Solicitors Regulation Authority (SRA) has announced that, following a consultation, it will not be making changes to the current rules requiring solicitors to have a minimum level of professional indemnity insurance (PII) cover.
The SRA published a consultation in March 2018 relating to PII entitled “Protecting the users of legal services: balancing cost and access to legal services” in which it proposed, inter alia:
- Reducing the claims limit – firms must have minimum cover of £2m, rising to £3m for firms with certain structures. The plan was to reduce this to £500,000 for all firms apart from claims for conveyancing services. Some 98 percent of historic claims in our data set would have fallen within this limit;
- Having a higher limit for conveyancing – firms providing conveyancing services would need a minimum of £1m cover which would reflect the higher risks of working in that area and making sure the public were protected where problems were most likely;
- Providing flexibility around who the cover should protect – removing financial institutions, corporate and other large business clients from the minimum terms and introducing a conveyancing component in insurance so that only firms that need cover for this work were required to buy it;
- Making changes to run-off – a six-year run-off period would be retained but cap the level of cover at £3m for those firms providing conveyancing services and £1.5m for other firms. This would tackle the problem of the high cost of this type of cover and thus make it easier for firms to close properly and reduce the risk of solicitors delaying retirement unnecessarily.
The aim of the proposals was to ensure that solicitors were providing appropriate protection to the public while at the same time allowing them to take out cover that better reflected the work they did. Thus, by potentially reducing costs for some firms, particularly smaller ones for whom PII is a very significant overhead, this could lead to lower prices for customers and even attract new legal businesses into the market.
Feedback from the PII consultation indicated – among other issues – that insurers might not lower premiums, or firms might not take the opportunity to lower their cover. There was also concern that if changes resulted in firms buying additional layers of insurance to maintain current levels, costs and complexity could increase. Even if costs were lowered, some thought that overall consumer protection would be reduced.
In the light of those findings, the SRA have decided not to proceed with the proposed changes as it appears to be unlikely that material benefit would be derived by firms in the foreseeable future or that greater public protection would be achieved. Combined with a potential hardening and contracting of the insurance market, adding another layer or risk could simply exacerbate problems for the profession.
Not that the consultation has provided to be totally fruitless. In the light of feedback received the SRA will continue to look at three key areas in relation to insurance:
- Firm closures – in relation to this the SRA have indicated that they will take forward a project to examine how they can make it easier for firms to close in an orderly way. This will include looking at ways of helping firms to manage the cost of run-off cover, reviewing successor practice rules and considering wider support to those firms wishing to close, to potential purchasers and to affected clients.
- Cybercrime – the SRA has indicated that it will work with insurers to support the development of cybercrime related insurance products and help to define what should come within the scope of cybercrime cover. The SRA will continue to provide support to help firms protect themselves against cybercrime as part of their on-going work in this area – (See SRA Risk Outlook 2019/20).
- Participating Insurers Agreement – it has been agreed by insurers that the Participating Insurers Agreement needs to be reviewed (see list of Participating Insurers). The SRA will work with insurers with a view to introducing an improved agreement for the 2020/21 indemnity year.
The SRA’s overall position in relation to PII can be found in its Post Consultation Position response