The Solicitors Regulation Authority’s proposed indemnity insurance reforms have been attacked from all sides – by the Legal Services Consumer Panel, the Law Society and the insurance industry itself.
In a highly critical response, the consumer panel said it was opposed to three of the five main proposals – cutting the level of compulsory cover from £2m to £500,000, reducing the amount of run-off cover from six years to three, and introducing a cap on aggregrated claims.
The panel said that if savings to consumers in lower legal fees did not materialise as a result of the changes, “consumers would lose current protections but without gaining anything”.
As first reported on Legal Futures, Des Hudson, chief executive of the Law Society, warned that the indemnity reforms could “destroy high street conveyancing” while the Council of Mortgage Lenders said lenders would cut their conveyancing panels or use non-solicitor services.
The panel said it would not be a “fair or desirable outcome” for risk to be transferred to consumers at “marginal or no benefit”.
The panel said research had shown that consumers were “happy to pay for the protections provided” by compulsory indemnity insurance and rejected the idea of arranging it themselves.
If the SRA insisted in going ahead with the cut to the compulsory limit, the panel said solicitors should be under a duty to “make it very clear to consumers that their insurance cover was not high enough to cover the consumer’s assets” before work was started.
This would allow the potential client to switch to a lawyer with a higher level of cover. The burden of any loss where information was not provided should fall on the Compensation Fund, the panel said.
The cut in run-off cover would mean solicitors offering “less protection to consumers” than the Bar Standards Board, the Council for Licensed Conveyancers or ILEX Professional Standards, the panel complained.
It argued that introducing a cap on aggregated claims could mean that individual claims would not be met where there were large losses.
However, the panel supported limiting those who can claim on compulsory cover to individuals, small businesses with turnover of less than £2m and charities and trusts of a similar size. It also backed requiring firms to assess and put in place “an appropriate level of cover beyond the minimum”.
In his latest response on behalf of the Law Society, Mr Hudson described the SRA’s reform programme as a whole as “too hastily conceived and possibly highly risky”.
He said the SRA announcement had “raised expectations” among some firms that they would benefit from falls in premiums.
“The reality of the proposals may be different. Under the threat of regulatory sanctions, firms will have to demonstrate that they have purchased sufficient insurance above the new lower limits to cover risks which are currently covered in their policies.”
Mr Hudson added that the society considered that six weeks was “too short a time period to consult on and assess the consequences of such far-reaching changes”. But the SRA has indicated that there are no plans to extend the consultation period.
Meanwhile, insurance broker Lockton reported that at a forum it organised earlier this week in London, insurers said they did not see anything in the proposals which would signficantly reduce exposure or premiums.
Jenny Screech, legal professions manager at Zurich Insurance, described the SRA consultation’s underlying premise as ‘fundamentally flawed’ if its aim was to deliver premium reductions.
While the majority of claims settled by Zurich were still under £100,000, she told the forum that the sheer volume of claims and exposure to “sideways claims” – as much as the increase in seven-figure settlements, meant that insurers were operating in “a considerably challenged market”. Therefore the proposed reduction in compulsory cover would not significantly reduce firm’s premiums.