Davis: Insurers could be driven from the market
The Law Society has expressed sympathy with professional indemnity insurers over their call for the right to cancel policies when solicitors do not pay the premium or excess.
It said the Solicitors Regulation Authority (SRA) should take tougher action against solicitors in the meantime.
The International Underwriting Association (IUA) issued an open letter to the profession [1] earlier this month outlining its frustration over the SRA’s refusal to change the minimum terms and conditions of insurance that it sets.
The association proposed changes to the minimum terms that would mean policies could be cancelled in the event of non-payment, payments of excesses could become mandatory and would be deducted from claims, and payment for run-off cover would become compulsory at inception.
The IUA, whose members underwrite most of the indemnity insurance cover for law firms, said the credit risk taken on by insurers could become “commercially unacceptable”, leading to a restriction in the supply of insurance “across the board”.
In a response published yesterday, Law Society president Simon Davis said it was “sympathetic” towards the IUA’s request “but is mindful that the primary purpose of professional indemnity insurance is to protect solicitors’ clients and the wider public”.
He explained: “We agree with the IUA that non-payment of premiums or excesses by a minority of solicitors is a serious matter, and one that has serious implications for the profession as well as the insurers.
“Insurers are compelled to pass those extra costs on to the rest of the profession, which means that well-managed firms end up paying not only for themselves, but also for the small minority of disorganised or insolvent firms.
“If the problem is not addressed, it could drive insurers from the market – reducing capacity – making it harder to find cover and further increasing the cost.”
Mr Davis said the Law Society has offered to work with the SRA and the IUA to reach a “mutually acceptable” solution and has suggested that in the interim the SRA should be more willing to take regulatory action against solicitors who do not make the required payments.
“These are difficult times facing the legal profession and the economy as a whole, so it is vital that we maintain a competitive market for PII. To help achieve this, it is vital that all our members pay for their premiums and excesses.”