Regulator intervenes over concern about “PII market failure”

Insurance: CLC imposes conditions to allow firms to keep practising

The Council for Licensed Conveyancers (CLC) has had to intervene after two professional indemnity insurers offered firms cover that did not comply with its minimum terms and conditions (MTC).

In what it called “a one-off intervention in response to extraordinary circumstances which approach a market failure”, the regulator has allowed firms that were able to meet stringent conditions and did not carry a portfolio of the high-risk work to continue practising with the cover offered, subject to further protections.

These include practices lodging funds in escrow to fund the purchase of run-off cover should it be required during the year, the CLC stress-testing firms’ ability to pay elevated excesses and requiring set-aside of cash provision, and undertakings from practices not to carry out certain types of work and not to have done so in the past.

The CLC said that, taken together, the practices’ arrangements meet the MTC in full. It was “deeply regrettable” that not every practice that found itself in this position could be accommodated, however.

A statement said: “The role of the CLC as regulator is to set and maintain standards of practice and consumer protection.

“When firms were forced to choose between either closing immediately – which would present risks to clients as well as being a terrible step for those businesses and their employees – or taking out inadequate insurance, the CLC had to step in.

“This is a step that the CLC has taken reluctantly and carefully… This is a one-off intervention in response to extraordinary circumstances which approach a market failure.

“The only alternative would have been an additional compensation fund levy on all CLC-regulated practices to provision against the increased risk presented by the PII terms not being met by that small number of policies. That would not be acceptable.”

The non-compliant offers included very high excesses for claims in respect of buyer-funded development or the exclusion of that type of work and an additional payment for run-off, rather than run-off being integrated.

The excesses were “so high that there was significant doubt about the practices’ ability to meet them in the event of claims”.

The CLC said that, in “a better functioning market” and in a year when all insurers felt able to take on new business, the affected practices could simply have looked elsewhere. But this was not possible given the state of the professional indemnity insurance (PII) market.

“Aside from the pressures imposed by Covid and Brexit, insurers continue to be under pressure to improve profitability,” it recorded. “Insurers also have concerns about the potential for claims arising from the very busy period created by the SDLT holiday.”

Six practices have closed after failing to secure cover – all had “an elevated risk profile due to the type of work that they did”, the CLC said.

It was also critical of the delays in insurers issuing quotes. Though the vast majority of firms submitted at least one, and generally more, proposal forms to brokers well before the beginning of June, insurers only began issuing quotes in the second half of the month, with the bulk appearing in the last full week of the month.

The CLC said this “does not support a competitive market in PII”, and that it would be one of the major issues being addressed in its review of its PII scheme, taking place five years after it moved to the open market.

We reported last month that the CLC has issued a call for evidence to support the review.

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