City solicitors have outlined their deep scepticism about plans by the Solicitors Regulation Authority (SRA) to reform professional indemnity insurance (PII) rules, warning that “the solicitor brand should not be placed at risk” without very good reason.
Responding to an SRA discussion paper on the appropriate balance between the overall level of financial protection for clients and the regulatory burden on firms, the City of London Law Society’s (CLLS) professional rules and regulation committee echoed many of the points made by the Law Society in its response to the paper.
A further consultation, with detailed proposals, is expected in early 2016. The authority’s stated objective is to reduce the cost of regulation and thereby lower the cost of legal services to consumers.
The SRA responded quickly earlier this month to Chancery Lane’s criticisms of the discussion paper; its chief executive, Paul Philip, firmly denying that it had made any recommendations.
At the end of last year, the Legal Services Board rejected SRA plans to cut the indemnity cover for law firms from £2m to £500,000 and said the evidence was lacking.
The CLLS pointed out that a large majority of respondents to the SRA’s 2014 consultation on reducing the minimum PII cover had disagreed with the proposal. Equally, it was “not aware of any desire for change from our members”.
It chided the SRA for having cited the purpose of its regulation as simply being to protect consumers of legal services and support the operation of the rule of law and proper administration of justice. It should also have mentioned its statutory duty in relation to PII to have regard to the protection of solicitors and their staff, the City lawyers observed.
It continued: “The CLLS would welcome evidence-based proposals from the SRA, but believes the solicitor brand should not be placed at risk of harm, without well-grounded assurance that any changes will lead to worthwhile savings.
“We have a strong concern that one impact of the changes under discussion may be a significant increase in the incidence of coverage disputes and uninsured claims, and so undermine confidence in the profession.”
Elaborating, it added: “The PI insurance for solicitors in the London market is part of ‘brand solicitor’ and there are significant benefits to the profession from a strong solicitor brand.
“The SRA should have compelling evidence that changes will bring real net benefits to firms before making changes that risk reducing consumer protection.”
In conclusion, the CLLS said it agreed with the substance of the Law Society’s remarks in its own response to the SRA’s discussion paper.
In that response, while Chancery Lane said the SRA had raised “some new and potentially interesting proposals for changes to the client financial protections”, it warned the paper had revived “most of the controversial proposals for change… but has not, in the time that has elapsed, produced supporting evidence for a case for change”.
The society was concerned “that the SRA still does not fully understand how solicitors’ [PII] works, in particular its ‘claims made’ nature and the risks of unintended consequences arising.
“These risks include increasing the cost of PII, the additional burden on firms and increasing the risk exposure of firms and their clients to unnecessary and avoidable levels”.
Further, the paper “gives insufficient attention to the significant issue which needs most urgent attention – how to reform the costs and barriers to retirement for solicitors without reducing the current protection for them and their clients against unknown future claims”.
It stressed that there was no general appetite for “radical changes” in PII and added: “The SRA’s proposals, if implemented, could cause serious harm to high street firms and their clients, with no increase to access to legal services.”
The SRA was “pushing inadequately scoped proposals containing significant risks and uncertainty for the profession, its clients and the public interest”, the society concluded.