The Solicitors Regulation Authority (SRA) has reminded the Legal Services Board (LSB) of its decision to allow accountancy firms wanting to carry out legal work to have minimum indemnity insurance cover of £500,000, in a bid to head off concerns about its move to reduce the level for solicitors.
In its formal application to the LSB to cut the limit for solicitors from £2m to £500,000, the SRA pointed out that members of the Institute of Chartered Accountants in England and Wales (ICAEW) were not under a duty to secure an “appropriate level” of indemnity insurance – a duty the SRA is proposing for solicitors.
The regulator, strongly criticised by the Legal Services Consumer Panel over its indemnity plans, said the panel had not objected to the ICAEW’s £500,000 limit.
The SRA acknowledged that unlike the ICAEW, which this week obtained Parliament’s approval to regulate reserved probate work, its circumstances were different and its “remit goes much further than probate”.
In its application, the regulator estimated that “only around 50 conveyancing and probate consumers per annum” might make indemnity claims of over £500,000.
The SRA said that, allowing for the increase in house prices and applying the Solicitors Indemnity Fund pattern of conveyancing claims by value, over 99.9% of conveyancing claims would fall within the £500,000 limit.
On probate, the regulator noted that over 90% of estates were valued at less than £500,000. In the absence of indemnity data for probate, it said there was just one payment from the Compensation Fund in excess of £500,000 last year.
However, the SRA did accept that “issues have been raised” about personal injury clients with catastrophic injuries whose damages might exceed half a million pounds. “We would expect firms that specialise in these cases to arrange appropriate levels of insurance in accordance with the outcome in the code,” the SRA said. “It is important to stress that the £500,000 level is a minimum – not a new default position.”
The SRA recognised that the extent to which solicitors achieved the outcome to “assess and purchase an appropriate level of indemnity insurance” would depend partly on supervision and enforcement.
The regulator said it would consider performing an “early, targeted, exercise” to contact firms with more than 10% of their income coming from personal injury work or handling catastrophic claims, “pointing out their responsibility to comply with the outcome – as we did to the same cohort in relation to the ban on referral fees in personal injury cases”.
In a separate development, the SRA revealed in the application to the LSB that, despite the removal of the single renewal date for indemnity insurance on 1 October 2013, “in excess of 10,000 firms” had stuck with the 1 October renewal date.
“This means that huge numbers of proposal applications have to be completed and processed by participating insurers or their brokers in a very short time.”
The SRA’s indemnity plans have been criticised not only by the consumer panel, but by the Law Society, Council of Mortgage Lenders, Association of British Insurers and individual insurance companies.
However, it emerged earlier this month that the Bar Standards Board has followed the SRA in proposing that the specialist advocacy and litigation firms it hopes to regulate later this year should have a minimum indemnity limit of £500,000.