The Solicitors Regulation Authority (SRA) has insisted that a lower minimum limit for indemnity insurance would “attract a discount in premiums” for law firms.
Responding to widespread criticism of its plans to cut the limit from £2m to £500,000, particularly from lenders and conveyancers, the SRA said it was reasonable to assume that “in a competitive insurance market”, there would be a “downward pressure on premiums”.
In a letter to the Legal Services Board (LSB), Crispin Passmore, executive director of policy at the SRA, said many opponents of the plans focused on the planned cut in minimum cover, without acknowledging that the “principal change” was the introduction of a new outcome requiring firms to purchase an appropriate level of PII.
Mr Passmore said this outcome would deliver “more appropriate, targeted and proportionate” protection for consumers.
Replying to criticisms that the SRA had not allowed enough time for consultation, he said there was an “opportunity cost” of unnecessary delay, and the timing, allowing the change to be introduced in October, “strikes the right balance”.
On conveyancing, Mr Passmore said: “We accept that many, although not all, firms that engage (or have engaged) in conveyancing, will need to maintain a higher limit in order to satisfy the new outcome.
“While average house prices are far below £500,000, several lenders and insurers make clear that lenders will require cover at a level similar to what is currently in place.
“That confirms our view that sophisticated consumers are well placed to drive the market to provide the level of cover that they consider appropriate.”
Responding to arguments by the Council of Mortgage Lenders that the size of conveyancing panels could be greatly reduced, Mr Passmore went on: “We do not accept that the proposed changes will necessarily have a significant impact on the size of lenders’ panels, as firms that have been engaged in conveyancing will still need to maintain appropriate cover.”
Mr Passmore said it was “highly unlikely” that lenders would restrict the size of their panels to such an extent that it gave rise to competition concerns. “Of course, even if the proposals were to result in smaller panels, that would not prevent purchasers from being separately represented by a solicitor of their choosing.”
Mr Passmore said the SRA disagreed with a suggestion by Liverpool law firm Legal Risk that reduced premiums would not benefit consumers. “While we acknowledge that insurance is but one of a number of overheads, a reduction in premiums will make a positive contribution to the overall price of legal services – even if that is to mitigate other upward pressures.”
He added: “Many firms may take their time to change, keeping the current level of cover initially as they develop a better understanding of the choices available.”