Collins: competitive and open insurance market
The number of applications from law firms to enter the assigned risks pool (ARP) in its last year is back to pre-crisis levels, the Solicitors Regulation Authority (SRA) has reported.
As of last night, just 28 firms have applied to the SRA to go into the ARP since the insurance renewal date of 1 October, although some may be yet to contact the regulator. By 4 October last year, 53 firms had applied, compared to 411 in 2010.
A similar number applied the previous year, leading to estimates that the ARP faced liability for £50m in claims in each of those years. For the first years of the ARP, after the profession moved to the open market for its insurance, there were typically 20-30 firms in it.
The relatively small number of firms now should substantially reduce the burden of the ARP on the profession, which for this year only – as part of the ARP wind-down – is paying the first £10m of claims received. The second £10m will be covered by insurers, with this layering repeated up to £50m, above which any claims will be covered by the insurers.
Earlier this year, with the prospect of low numbers in the ARP meaning only solicitors’ liability would be triggered, the Law Society called on the SRA instead to share liability equally with insurers to ensure they had “skin in the game”. However, this was rejected by the SRA.
The ARP will close on 30 September 2013 except to continue providing run-off cover incepted before then. This year’s policies have instead included provision to be extended by 90 days from that date if the firm has not taken out a new policy.
A firm may continue to practise while attempting to obtain a policy for the first 30 days of this extended indemnity period. For the next 60 they will only be able to work on existing instructions while attempting to find insurance, or conduct an orderly closure if they fail.
SRA executive director for policy Richard Collins said: “The changes we have introduced will ensure firms have PII in place that provides the required level of consumer protection within a sustainable market for the long term, by creating a competitive and open insurance market…
“We will be carefully monitoring the effect these changes have. We have also put new systems in place for insurers to alert us at an early stage where firms are experiencing problems. This means we can provide early support to firms, and where necessary, protect consumers from a sudden and disorderly closure.”
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