Insurance: Market is hardening
The Solicitors Regulation Authority (SRA) has agreed to extend by a year the use of the Solicitors Indemnity Fund (SIF) to covers claims made after firms’ run-off cover expires.
It said the extra time would allow the insurance market time to develop commercial products.
The SRA requires solicitors to buy six years of professional indemnity insurance (PII) run-off cover when closing a firm with no successor practice, and up to now the SIF has covered any claims which arise afterwards.
However, the 2016 decision of the Solicitors Regulation Authority (SRA) to close the SIF in September 2020 – and not 2023 as the Law Society has argued for – meant that, once it closed to new notifications, solicitors of closed firms, and even their estates, would be personally liable for any claims.
In reaching its decision the SRA board made a distinction between consumer protection and the so-called ‘sleep easy’ factor for retired solicitors, the former being a regulatory issue for the SRA and the latter the domain of the Law Society as professional body.
Last year, the SRA decided to maintain the run-off period at six years, finding that 90% of all claims relating to work done by closed firms were made within that period.
However, last month the regulator agreed [1] to revisit the issue in light of Covid-19 and no evidence of the insurance market developing post-SIF products, and last week the board decided to extend the SIF for another 12 months until 30 September 2021.
A paper before the board said the PII market has “hardened and contracted significantly” since 2016, particularly in the last 18 months, with Covid-19 currently having a further negative impact.
“Insurers and brokers have reported reduced capacity and lower risk appetites, often due to new prudence rules set by their own regulatory bodies… This is impacting on the cost and availability of PII for many law firms generally.
“The priority for insurers is maintaining their existing clients and portfolios. Many are reluctant to develop new and untested products or take on additional uncertain risk.”
The board heard that insurers were also increasingly concerned about the ability of retired solicitors to pay any excess as well as the premium.
Anna Bradley, chair of the SRA Board, said the extra year would give firms and insurers “more time to focus on developing additional insurance for those who are interested”.
Law Society president Simon Davis welcomed the delay but said it did not solve the problem. He urged those currently covered by SIF, in run-off or contemplating closure to talk to their brokers and try to come to an arrangement for cover from October 2021.