Hudson lambasts SRA over indemnity reform and for “mismanaging” ARP

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By Legal Futures

20 January 2011

Hudson: SRA has myopic view of public interest

Solicitors Regulation Authority proposals to exclude lender and other financial institution claims from the scope of compulsory professional indemnity insurance (PII) will be “massively damaging to the profession” and lead to more expensive and longer conveyancing transactions for the public, Law Society chief executive Des Hudson has warned.

He told an Association of British Insurers (ABI) event on PII reform on Thursday that the change – which the SRA envisages happening from 1 October this year, subject to its current consultation – will lead to separate representation for lender and borrower.

ABI policy adviser Matthew Young told the event that separate representation was “not a bad thing” as it could potentially raise standards by moving away from a commoditised approach where firms do not spend enough time on cases and use overly junior staff, leading to claims. The Council of Mortgage Lenders has already expressed concern about the prospect of separate representation.

Trevor Meadowcroft, regional underwriting manager at Aviva, predicted that conveyancing firms would not have a problem securing add-on cover for lender work as problems often arose with firms that do not tell their insurer that they handle property work. A survey of 10 liability insurers carried out by the ABI as part of its response to the SRA consultation (of which seven are currently in the market) found that five would be willing to offer financial institutions cover as an add-on.

Overall the survey found that removing compulsory coverage of financial institutions will “make the market for solicitor PII work better for all concerned” as it would encourage those insurers thinking of leaving the market to stay and those insurers not in the market to enter it.

Mr Meadowcroft said removing cover for financial institutions would not be necessary if instead insurers were allowed to void policies for non-disclosure or misrepresentation in the proposal forms – something the SRA is considering for 2012.

Mr Hudson attacked the SRA for its “myopic and ill-conceived” approach to the public interest in pursuing its reforms that he said seemed to exclude legitimate consideration of the impact on the market and the profession. “[The reforms] are a direct threat to hundreds and hundreds and hundreds of firms up and down the country,” he said, insisting that consumers would not benefit from a “stifled market”.

Mr Hudson also accused the SRA of “mismanaging” the assigned risks pool (ARP) until six months ago, adding that “there continue to be very serious concerns about the way the ARP is and will be managed”. His personal view was that the ARP should be abolished, with firms given a grace period of 30 or 60 days to sort out cover after the renewal deadline or have to shut down.

From the floor, Mark Casady of underwriter QBE argued that the purpose of the ARP – to rehabilitate firms – had been lost, saying “it’s not a hospital, it’s a hospice – firms go there to die”.

Mr Hudson agreed, noting that only around 4% of firms which are still in the ARP after the first couple of months post renewal are rehabilitated. “I can’t see how they enter the ARP and then the SRA classifies them as low risk,” he added.

There was broad agreement that key to improving the situation was ensuring the quality of firms undertaking conveyancing and Mr Hudson highlighted the society’s new conveyancing quality scheme (CQS). The Law Society also announced on Thursday that it is to launch a public relations campaign in April to promote the CQS. President Linda Lee said: “The aim is to generate publicity for legal practices which have secured the CQS mark of excellence and enable them to market their CQS status to the public effectively.”

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