Oversight regulator to put cost of PII under the microscope

Phillips: Work will benefit consumers, profession and society

The Legal Services Board is to launch a review of professional indemnity insurance (PII) and compensation funds to ensure “the right balance is struck” between protecting consumers and the cost of that protection.

The oversight regulator is also planning to look at litigation funding for the first time.

Its draft 2022/23 business plan, issued yesterday for consultation, identified “mounting concern on the ability of legal providers to secure cost-effective insurance” against the background of a hardening PII market.

It said: “This increasing financial pressure could lead to increased costs for consumers. It could also reduce the number of legal professionals operating in the market, impacting on consumers’ ability to access justice. Further, cautious approaches by insurers may limit the ability of legal providers to innovate.”

Despite complaints about the cost of insurance this year, Solicitors Regulation Authority chief executive Paul Philip said last month that it has “no intention of intervening in the PII market at the moment”.

There was “no sign of market failure” and he suggested that “insurers would say you’ve had some years of a soft market [and] you’ve got to take the rough with the smooth”.

The LSB said it was also concerned that some regulators were finding it “increasingly difficult to secure adequate insurance-backed compensation fund arrangements” – both the Council for Licensed Conveyancers and Intellectual Property Regulation Board had problems this year.

The LSB said it was looking to help establish “the right balance between protecting consumers when things go wrong, and the costs of that protection and associated impacts”.

Other activity in the coming year will include working closely with frontline regulators “to explore the development of a central regulatory database”, using data from its small business legal needs survey to make the case for a legal support strategy for small businesses “that helps to reduce unmet legal need”, and “establishing and embedding clear principles” on enforcement and disciplinary work to ensure public and professional confidence.

The recovery of the Legal Ombudsman will remain under close scrutiny, with the LSB reiterating its warning that reform would follow should performance not improve; at the same time, expanding redress to those who use unregulated legal services remains on the table.

The LSB noted how litigation funders, who have historically been focused on commercial litigation, were increasingly backing collective redress claims involving citizens.

“Without the significant financing these businesses provide, it is possible that some recent cases may not have gone ahead,” it acknowledged.

“However, there are also concerns on the increasing role of these businesses, including: funders controlling the litigation acting in their self-interest rather than the best interests of clients; clients left with little funds once funders have recovered their share of the damages and legal fees are paid; and a lack of transparency.”

It plans to “monitor developments” as part of its wider ‘scope of regulation’ project, through which the LSB is building a better understanding of the unregulated legal services market.

That project forms part of its 10-year vision for reshaping legal services, published in March, and will inform the scope and timing of a planned statutory review of the list of reserved legal activities.

However, the oversight regulator said that, having decided to focus on more immediate issues such as PII, “we do not intend on beginning a statutory review in 2022/23”.

But it stressed: “We remain of the view that a statutory review of the reserved legal activities is worthwhile, but it would be a significant undertaking, demanding stakeholder attention and considerable LSB resource.”

The consultation put forward a 4.6% (or £189,000) increase in its budget to nearly £4.3m. It said two-thirds of this (3.1%) was inflation and would add £1 onto the practising certificate fees paid by all regulated lawyers.

“We have critically assessed our proposed activities for 2022/23, and our proposed budget reflects the resources required to meet the scale of the complex and long-term challenges facing the sector.”

LSB chair Dr Helen Phillips said: “The activities in our draft business plan will enable us to continue making progress on the challenges outlined in our strategy for the legal services sector and will deliver benefits for consumers, the profession and society more broadly.

“They will also help to ensure that the essential role of legal professionals in a functioning society is valued and promoted.”

The consultation closes on 4 February 2022.

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