Rated insurers “may be reluctant” to offer lower indemnity limits


Brian Balkin

Balkin: unrated insurers may take 5% less in premiums for 25% less cover

Rated insurers may be reluctant to offer law firms indemnity limits as low as the £500,000 proposed by the Solicitors Regulation Authority (SRA), a leading insurance broker has warned.

As the Legal Services Board considers whether to approve the SRA’s plan to cut the minimum compulsory cover limit, Brian Balkin, senior vice-president of Lockton, said rated and unrated insurers would take different approaches.

“A good insurer with a good rating may well ask firms why they want a lower indemnity limit and whether it is appropriate,” Mr Balkin said.

“They will say to firms: ‘Can you tell me some reasons why it is appropriate?’ If the underwriters don’t accept them, they won’t quote.

“The unrated market may be quite happy to offer firms lower indemnity limits, but they may take 5% less in premiums for 25% less cover.”

Mr Balkin said the risks for partners in firms that decided to cut their indemnity insurance limits were “potentially large”.

He said that if they had given clients undertakings that indemnity insurance would be in place at a certain level, they would need to contact clients and ex-clients and tell them if that amount had been reduced.

However, Mr Balkin said “lower risk” firms, such as high street criminal law practices, could benefit from the chance to purchase a lower level of indemnity cover.

Calum MacLean, risk manager at Lockton, added that “quite a few” rated insurers would not offer firms indemnity cover limits of less than £1m.

He said insurers would be reluctant to accept lower limits for “any firm that has carried out conveyancing in the last six years”. Mr MacLean said conveyancing had the longest delay of any legal service between work carried out and claims arising – four or five years.

“A very small number of firms would benefit from reduced limits,” he said. “With the current indemnity limit, all firms are on a level playing field and there is very little risk of firms being under-insured.

“The danger is going to be from one or two charlatan law firms that take short cuts, and operate with unrated insurers that are not necessarily looking at the detail. There is a low likelihood of the SRA picking up on this, and consumers may get hurt.”

The SRA this week issued a call for evidence on its indemnity reforms.

 

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