Solicitors on the hook for £15m in unpaid ARP premiums

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By Legal Futures

11 January 2011

Costly business: SRA has recovered less than 10% of run-off premiums

Solicitors have had to cover £15m in unpaid premiums of law firms that have been in the assigned risks pool (ARP) during its first 10 years, it has emerged.

Of that, £6.1m is for run-off cover for firms that closed without insurance, and the figures reveal that the Solicitors Regulation Authority (SRA) has collected just £500,000 in run-off premiums since the ARP was set up in 2000.

Though firms that continued to practise have paid £19.5m in premiums since 2000, £9m remains unpaid.

The ARP is paid by qualifying insurers in proportion to their share of the market for the compulsory layer of cover, and the money recovered from the rest of the profession through their premiums.

The non-payment problem has become particularly acute in the last two years of escalating premiums; 54% of the £10.8m in premiums levied on practising firms in 2008/9 and 2009/10 are unpaid, as are over 90% of the £4.4m in run-off premiums. Despite this, the SRA’s financial protection committee was told yesterday that the ARP enforcement strategy has been going well, and only two firms from the 2009/10 ARP have been intervened in, with two more facing intervention, “considerably less than had been anticipated”.

The figures do not include the current year. The 264 firms currently in the ARP have so far paid nearly 20% (£2.5m) of the record £13m in premiums (more than twice the previous record of £6m the previous year). But just £3,000 of the £865,000 in run-off premiums have been paid.

An SRA spokesman said: “Many firms opt to pay their ARP premium on a monthly basis via Premium Credit. It takes a little while to get finance arrangements in place. The first tranche of payments from Premium Credit in relation to 83 firms has now been received.”

The committee also heard that 56 claims have already been lodged for 2010/11. There have been 737 for 2009/10 and 1,071 for 2008/9, which between them are more than the 1,533 claims received for all of the previous eight years. The current “high” claims reserve for this year and the past two years tops £100m.

The SRA has categorised 128 of the 269 firms as high risk; 28 of them that are deemed to be a serious risk are set to receive a visit from the forensic investigations team. There is one intervention expected. Many other firms will receive a lower-level visit from the practice standards unit.

The committee was told that SRA staff are also working to ensure that firms are not practising uninsured by checking the status of the 261 firms which downloaded or were sent the ARP application form but did not take up cover.

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