The Solicitors Regulation Authority (SRA) is to look again at whether to close the Solicitors Indemnity Fund (SIF) – which covers claims made after firms’ run-off cover expires – in September this year.
Anna Bradley, who chairs the regulator’s board, said the Law Society had asked whether the SIF should continue to provide run-off cover for law firms beyond the existing limit of six years “because of the effects of Covid-19”.
The SRA has refused repeated pleas from the Law Society to extend the life of the SIF for three more years since the regulator’s decision, taken in 2016, to close the fund in September 2020.
Under the minimum terms and conditions for professional indemnity insurance (PII), solicitors are required to buy six years of run-off cover when closing a firm with no successor practice, and up to now the SIF has covered any claims which arise afterwards.
Ms Bradley that, after “detailed discussion” at its meeting earlier this month, the SRA board agreed to “commission some actuarial work on the affordability of extending the present scheme”.
The board asked for further work to be done “to better understand both how Covid-19 is impacting” on the PII market.
In a paper for the board meeting, the SRA said the society wrote to it earlier this month, highlighting its concern that the “hardening of the PII market is likely to be exacerbated by the current Covid-19 crisis” and that its enquiries had identified that “no insurers” were developing post-SIF products.
This, the society said, reflected the “risk-averse approach of the insurance market”, as did feedback from members who said they were “unable to find post six-year run-off cover”.
The SRA went on: “The letter highlights that the current situation may result over time in more claims, as well as a reduction in the assets available to retired solicitors to cover any personal liability to meet claims.
“As well as the impact on members of the profession, it reflects on the fact that this will result in claimants who will be left without redress.
“This reflects our understanding, from our own discussions with insurers and brokers over the past months and confirmed in more recent weekly discussions.”
The SRA said anecdotal information suggested there were “very limited options” for purchasing alternative cover post-SIF.
The regulator said one possible alternative to an indemnity solution would be to use “the existing resources available in the SRA’s Compensation Fund” to meet a new category of claims.
“This could be limited to those falling outside of the mandatory six-year run-off period in circumstances where the firm or individual has been unable to insure against its exposure to such claims.
“This could also be limited in time to help address the particular concerns around Covid-19, for example to claims brought within a three-year period.”
However, this would need a change to the Compensation Fund rules following a consultation and any rule changes would need to be approved by the Legal Services Board.
The SRA said it would bring a “further analysis of the costs and potential benefits of this potential alternative” to the board when it reconsidered the issue.