The majority of respondents to the Solicitors Regulation Authority’s (SRA) discussion paper on post-six-year run-off cover (PSYROC) supported retaining the Solicitors Indemnity Fund (SIF), it has emerged.
But in deciding instead to run a replacement indemnity scheme in-house from next September that offered the same level of protection for consumers, the SRA said it could achieve savings of around £500,000.
It reported that the majority of responses to the discussion paper supported retaining the SIF. “This was on the basis that it provides appropriate protection for consumers and retired solicitors at a cost the profession is willing to fund. And the status quo is perceived by the profession to work well.
“Others, including the Law Society, local law societies and the Legal Services Consumer Panel did not object in principle to an SRA-run scheme providing the same cover as the SIF. Respondents did not support the use of a compensation fund arrangement.”
The SRA said the in-house option offered greater scope for cost savings “to ensure proportionality”, and was also “more appropriate in terms of governance and consistency with our other regulatory arrangements”.
Independent advice from Willis Towers Watson estimated that the SRA option could save £300-400,000 a year in claims-handling costs and upwards of £120,000 in infrastructure costs, compared to £100-175,000 and up to £48,000 respectively if the SIF was reformed. SIF is an independent company with its own governance.
Transitional costs would not be significant, the SRA added, given the new scheme would use existing staff – “with outsourced expertise as appropriate” – and infrastructure. They would not be much greater, if at all, than the cost of updating the SIF’s governance and systems.
The SRA board “considered that even with streamlined governance it would not be proportionate to maintain an independent entity solely to provide this post six-year cover”.
Several responses raised concern that moving consumer protection within the SRA could cause difficulties if a matter led both to a claim and a disciplinary case.
The SRA said: “We recognise that we will need to manage the handling of such events to ensure fair and effective processes and appropriate outcomes across our functions. This is as we already do with claims to the SRA Compensation Fund.”
Running the scheme would also ensure “that it is delivered in a way that is consistent with and works in parallel with our other consumer protection arrangements”.
The Willis Towers Watson report also identified scope for any future scheme “to realise cost savings by optimising its asset and liability management”, including its approach to reserving against claims and reinsurance.
The consultation outlined why the SRA board rejected a separate compensation fund as the third alternative. It would provide “significantly lower consumer protection” than the SIF and be less cost-effective because it has different claims-handling requirements. It would “not be certain to benefit from access to the residual assets of the SIF”.
SRA chair Anna Bradley said: ‘Appropriate protection for those using regulated law firms is essential, but we also need to make sure the approach is cost effective and proportionate. That is important for both consumers and law firms.”
The consultation runs until 3 January 2023.