There are powerful reasons why the Solicitors Regulation Authority (SRA) and Law Society could reverse their positions respectively in favour of and against reform of professional indemnity insurance (PII), it has been claimed.
Crispin Passmore – until the end of last year leader of the SRA’s reform programme – said that five years after PII reform was first proposed, times had changed.
Speaking at this month’s Legal Futures Regulation and Compliance Conference in London, Mr Passmore did not claim inside knowledge but said there was good reason to believe the SRA would change course on PII reform when it announced its response to its 2018 consultation on the issue.
In this, the SRA proposed reducing the compulsory level of PII to £500,000 – although conveyancers would have to secure £1m in cover.
It has also outlined radical reform of the Compensation Fund with the aim of turning it explicitly into a ‘hardship’ fund and banning relatively wealthy people from claiming on it.
The SRA board is due to announce its decision on the way forward later this year.
Mr Passmore said the SRA had claims data covering much of the legal market from 2004 to 2014. This suggested there was little risk to consumers if the reform package was shelved, given that law firms would continue to be under an obligation to buy adequate insurance cover.
“Let’s step back and ask well ‘why wouldn’t you if you were the regulator, bother to take this particular fight on?’,” he said.
It was not as important issue as it was five years ago, he observed. “Five years ago, solicitors didn’t practice outside of regulated law firms delivering services to the public, we didn’t have freelance solicitors [and] we didn’t have solicitors in unregulated businesses.
“We didn’t have MDPs [multi-disciplinary practices], we didn’t have the scale and breadth of legal process outsourcers, platforms [or] the range of different businesses that we have now.
“We didn’t have Big Four accountancy firms delivering legal services outside of their legal regulated [arms] as well as inside their regulated arms.
“And we didn’t have quite the scale of in-house pressure that has grown over the last five years to do more… to grow their businesses, to work with some of those LPO [legal process outsourcing] providers.”
Equally, the Law Society, which has campaigned relentlessly against the reforms, might consider whether, given the way the opportunities for solicitors’ practice had altered, an expensive “gold-plated” PII regime was “really in the interests of regulated firms” and whether it was appropriate to maintain that level of cover.
From the SRA’s point of view, Mr Passmore went on, the surest way to guarantee that the unregulated sector would grow “is to leave minimum terms and conditions as they are now and leave regulated firms a choice of accepting higher costs or moving into a more flexible regime elsewhere”.
In fact, he said: “As that other regime grows, I suspect we will start to see not the SRA saying we should come back and have this fight but the Law Society knocking on the door of the SRA and saying ‘can we please get some reform of the minimum terms and conditions’.”
He accepted he might be wrong and that the SRA would go ahead with the reforms and Chancery Lane continue to campaign against them.