The Solicitors Regulation Authority (SRA) is wrong to assume that premiums will fall as a result of its professional indemnity insurance (PII) reforms, the Association of British Insurers (ABI) has warned.
It said the trade-off of possible savings with damage to the profession’s reputation was not worth taking the risk.
In its response to the SRA’s consultation on reducing the compulsory layer of cover to £500,000, the ABI noted that the SRA’s own analysis showed this could leave a small minority of consumers who have suffered at the hands of a solicitor without sufficient access to redress, particularly when combined with the proposed changes to the compensation fund.
“Even if these claims would be small in number, it does not mean that this would be a price worth paying to seek to reduce costs for solicitors and their clients,” the ABI said.
It drew a comparison with the reputational damage the insurance industry has faced due to the “false” perception that insurers decline claims as a matter of course because of the publicity around the small number that are declined.
“A reduction of trust in the legal profession might have the effect of reducing the number of people seeking legal help when they require it. This runs counter to the stated aim of the SRA in its consultation paper.”
The ABI cautioned the SRA against assuming that its changes would lead to lower premiums for all solicitors, and by extension lower costs for users of legal services.
When the minimum indemnity level was doubled in 2005/06, “the average premium for a PII policy barely changed”, it observed.
The ABI also questioned whether the reforms would, as the SRA hopes, encourage new firms to enter the legal market.
“Members have expressed the view that the legal services market is already highly competitive in areas of practice more frequently used by consumers such as family law and conveyancing.
“As such, we do not anticipate that any changes in PII requirements would result in a surge in new firms entering the legal services market, save for possibly in a few niche or specialist areas.”