The Solicitors Regulation Authority (SRA) has acknowledged that the majority of responses received to its consultation on banning unrated indemnity insurers favoured a ban.
Despite 18 of 31 responses being in favour, the regulator announced last week that, although another unrated insurer, Iceland-based ERIC, was heading for liquidation, it was against a ban.
At the same time, it outlined radical changes to the current indemnity arrangements, including reducing the minimum level of cover required to £500,000.
In a two-page summary report on the consultation, launched in January, the regulator said improved stability was the driver behind those who saw the change as positive, “believing it will make the market more secure and enhance public protection”.
However, the SRA did not identify who the majority were. Most of those against were sole practitioners, however.
“They are concerned about restricting the market and the disproportionate negative effect on them and small firms, where use of unrated insurers is concentrated, believing that removal of unrated insurers could lead to closure and reduced access to legal services for their clients.”
The SRA said the Law Society was also against the proposed ban. “The Law Society believes a rating requirement does not address the issue of insurer insolvency and will not eliminate the risk of further unplanned insurer exit.
“It could have a destabilising effect and negative consequences for a significant number of firms, in particular BME firms, sole principals approaching retirement and female-led firms.”
The regulator said other opponents of the ban had a variety of concerns.
“These include doubts about the SRA’s role in regulating the financial stability of insurers, the risk of too much reliance on rating agencies, the disproportionate and negative impact for small firms leading to lack of competition, and the potential for a reduction in access to legal services.
“It was felt it would also lead to increased premiums and higher costs for clients. Others felt such a change is at too short notice and does not allow sufficient time for the current unrated insurers to achieve a rating. There was also the view that a rating requirement is a short term solution and that there should be a detailed review of the breadth of cover.”
In a half-page policy statement accompanying the summary report on responses, the regulator said it was concerned about a “disproportionate impact” on sole principals and small firms if a ban was introduced.
“Requiring a minimum strength financial rating at this point could cause higher costs for firms, which could outweigh any benefit.”
The SRA said it would review the issue after it assessed the impacts of the fundamental changes to the scope of the cover it was proposing, designed for implementation on 1 October 2014.