The Legal Services Board (LSB) has rejected plans by the Solicitors Regulation Authority (SRA) to cut the indemnity cover limit for law firms from £2m to £500,000.
However the super-regulator accepted the SRA’s proposal to add a new outcome to the Code of Conduct requiring firms to buy an “appropriate” amount of indemnity insurance.
Chris Kenny, outgoing chief executive of the LSB, said this morning that he welcomed the SRA’s decision to “comprehensively review financial protection arrangements”, and appeared to suggest that the best solution might be to have no minimum limit at all.
“What matters is that firms have the right incentives to assess their risks accurately and so ensure that consumers are protected,” Mr Kenny said.
“It is not clear to the Board that a minimum level of cover necessarily has a place in achieving that and we were certainly not persuaded by the evidence put forward for the figures proposed.”
In the LSB’s decision notice, Mr Kenny set out the detailed reasons why the SRA’s proposals were rejected.
He said the “absence of robust analysis of current data causes real problems in justifying the proposal to decrease the minimum level of PII to £500,000.”
Mr Kenny argued that “the evidence of any direct cost benefit is inconclusive”, but at best suggested there may be a “marginal reduction” in premiums in the region of 5% for those taking out minimum cover.
“While the LSB does not discount the value of any cost reduction, the SRA goes too far in assessing the potential benefits of this potential cost reduction.
“There are reasons to be concerned that costs for some may well increase and that therefore any suggested benefits are either unlikely to arise, or will be of minimal impact when aggregated at the market level when set against the potential consumer prejudice.”
Mr Kenny added that the absence both of “consensus of view” in the SRA’s consultation exercise and the lack of a full impact assessment “backed by specific and up-to-date data” undermined the validity of the regulator’s assumption that premiums would fall.
Paul Philip, chief executive of the SRA, described today’s decision by the LSB as “disappointing”, and said the regulator would be “considering the correspondence carefully” before responding.
The LSB announced in August that it had extended the time it was allowing itself to make a decision on the planned cover cut until August 2015, effectively scuppering a cut in time for October’s renewals. The decision came in a warning notice issued to the Law Society, informing the society that it was “considering whether to refuse in part” the regulator’s plans.