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Solicitors’ mistakes costing indemnity insurers £200m a year

Passmore: best possible evidence to underpin reform

Passmore: best possible evidence to underpin reform

Solicitors’ professional indemnity insurers paid out around £2bn due to negligence claims in the 10 years to 2014, startling new figures released yesterday by the Solicitors Regulation Authority (SRA) revealed.

Having collated statistics from most of the insurers currently active in the market, the regulator said around 142,000 claims were made in that decade, although as that figure includes block claims, the number of individual cases of negligence was “much higher”. One in five claims led to a payment.

Insurers paid out a further £600m in defence legal costs.

A separate analysis revealed that between 1987 and 2016, there were another 111,000 claims during the run-off period against defunct firms covered by the Solicitors Indemnity Fund, leading to more than £2.5bn in payouts.

The ground-breaking analysis of PII trends was produced to inform the SRA’s development of proposals to changes the minimum cover requirements, after a previous bid to amend the rules – and cut the minimum level of cover from £2m to £500,000 – was rejected by the Legal Services Board [1], which wanted more information first.

In the period 2004 to 2014, residential and commercial conveyancing combined accounted for £767m of the money paid out – half of all the claims where insurers specified a reason for the claim – with other property work, such as lettings, causing a further £119m.

Commercial work (£229m), personal injury (£101m), litigation (£94m) and trusts and estates work (£74m) were the other big contributors.

In 98% of cases where there was a payment, it was less than £580,000.

The SRA suggested that root causes for the problems with conveyancing included work being completed by unqualified staff without suitable supervision, inadequate risk practices, pressures to complete large volumes of work quickly, and the amount of client money linked to conveyancing transactions.

On premiums, the analysis found that sole practitioners have the highest premiums as a percentage of turnover, amounting to an average of 7%, but overall premiums have remained “relatively stable” over recent years.

It also highlighted the problems that run-off causes. A third of solicitors aged between 41 and 60 work in sole practices, and with run-off premiums as much as three times the cost of regular cover, some are not closing their firms down in an orderly manner. Nearly a fifth of interventions into law firms are caused by poorly managed firm closures, the research reported.

Crispin Passmore, the SRA’s executive director for policy, said: “We want to create a more flexible way for firms to provide adequate and appropriate cover without spending more on premiums than is really necessary. That could mean lower costs for firms, and therefore lower costs for the users of legal services.

“Yet we need to make sure we understand the impacts of any changes properly. This data provides the basis for that discussion based on the best possible evidence. We will now look to talk to all interested parties about their views on this, ahead of holding a formal consultation next year.”