It is not the job of the Solicitors Regulation Authority (SRA) to help retired solicitors “sleep easy” by protecting them from historic negligence claims, its director of regulatory policy has warned.
With the Solicitors Indemnity Fund (SIF) due to close in September 2022, Chris Handford said the SRA would be setting out its plans within days but it was “outside our remit” to make decisions “for the purposes of protecting the profession”.
The SIF provides indemnity run-off cover for law firms beyond the mandatory six years which they are obliged to obtain under the SRA minimum terms and conditions of insurance.
The SIF was due to close in 2017, but the SRA extended the deadline three times, most recently in June , after pleas from the Law Society that the owners of law firms faced an uphill struggle to find alternative insurance.
Mr Handford said the SIF provided a “continuity of client protection, no matter when a firm closes” so clients would be covered by insurance against any negligence that occurred while the firm was open.
Speaking yesterday, he said the security this provided for retired solicitors, “also known as the sleep easy factor”, was predominantly a representative issue for the Law Society.
The SRA regulated in the public interest and had to decide if there was a “regulatory rationale” for continuing to provide run-off cover beyond six years.
Its decision-making had to be grounded in the regulatory objectives set out in the Legal Services Act, which included protecting and promoting the interests of consumers, the public interest, competition and improving access to justice.
He warned that this did not mean creating a “zero failure regime”, and proportionality was a “key consideration” in balancing consumer risk against appropriate protection.
He said the SIF had been financed until now by residual funds but it could not go on for much longer without additional funding from the profession.
Options included trying to find a cheaper way of insuring risk through SIF, insuring the profession through a master policy and, if firms were left to find insurance on the open market, deciding whether it should be compulsory.
Mr Handford said the SRA had appointed independent actuaries and insurance experts familiar with the SIF to comment on the impact of different options, and their thoughts would be published with the consultation and evidence of how other regulators approached the issue.
The consultation will run for 12 weeks and any changes will need to be approved by the Legal Services Board.
At the end of session, a solicitor in a two-partner firm said that despite a good claims record, indemnity insurance had cost his law firm £56,000 this year.
“I know firms that are thinking of closing, and all I can hear from you is that there are more costs coming our way when this closes. I’m not sure that everyone can understand the pressure that keeps getting piled on practices,” he said.
“Now we might end up having to give away whatever we did earn when we’ve retired. I’m struggling to see why we’re not getting more protection in what we’re doing.”