Insurance: 18-month project
The Legal Services Board (LSB) this week approved projects to improve the way regulators approach financial protection for consumers, as well as discipline and enforcement.
The oversight regulator said it was “imperative” that it and the frontline regulators “ensure that an appropriate level of consumer protections exist and that the cost to the profession is affordable and sustainable in the long term”.
A paper approved by this week’s meeting of the full LSB board recognised that the increasing cost of consumer protection was “putting new pressures on the economics of legal service delivery”.
It said: “The recent hardening of the PII [professional indemnity insurance] market, driven in part by insurers’ perceptions of global risks has manifested in a sharp rise in premiums in 2021 and a rise in insurance excess fees.”
With less capacity in the market as some insurers turned instead to “more profitable sectors”, the LSB said the trend could result in increased costs for consumers and also reduce the number of lawyers, potentially impacting on choice and access to services.
“Further, a reduced risk appetite by insurers may be stifling innovation as there is anecdotal evidence of cover being refused for some innovative activities that could improve outcomes for consumers.”
It was also concerned that some regulators were finding it increasingly difficult to secure adequate insurance-backed compensation scheme arrangements – this was an issue last year [1] for both CILEx Regulation and IPReg, the Intellectual Property Regulation Board.
The 18-month project involves two phases: first, evidence gathering, an econometric analysis and research, and then developing policy options.
The aim was to ensure that all regulators have the evidence and tools to consider whether they needed “new or recalibrated financial protection arrangements” while ensuring the costs to the profession and ultimately consumers was affordable and sustainable in the long term.
The project would also “start to address the root causes of the risks in the legal sector which may be leading to higher costs”.
Further goals were to better understand the trade-off between the costs and protection of PII and for PII to support innovation in legal services.
On disciplinary and enforcement processes, a board paper said the LSB needed to be assured that regulators were taking effective decisions to protect consumers from harm.
This project intended to “identify the principles that underpin effective disciplinary and enforcement decision-making by the regulators”, which would form the basis for a statement of policy.
This would build on a range of previous work, such as its review of the enforcement processes [2] of the Solicitors Regulation Authority and Bar Standards Board in 2019 and current work [3] on a joint principles statement on “counter-inclusive misconduct”.
The LSB said there was not a common approach across the sector to discipline and enforcement.
While this reflected “the diversity of the sector”, there were some gaps and potential areas for improvement, such as around quality assurance.
“Good practices adopted by some of the regulators include regular sharing and embedding of lessons learned and ongoing training for staff, but not all regulators do this.”
The LSB said it had identified concerns, through performance monitoring, about the proportionality of complaints handling and enforcement procedures.
Problems with the transparency of complaints-handling processes could indicate “systemic issues”.
Other worries included “the consistency of sanctions used by different regulators in response to different cases, which could undermine public confidence”.
The LSB said it wanted to identify the principles that “underpin effective disciplinary and enforcement decision-making” and “build consensus” on them.
Among the questions the LSB would explore were whether it was clear who took decisions, whether there was “appropriate senior oversight” of decisions, whether regulators’ approaches were “flexible and responsive” and whether they shared learning from their work.
There will be “in-depth reviews” of some of the legal regulators as well.