The Solicitors Regulation Authority (SRA) has revealed that around 10 firms have failed to close after failing to secure professional indemnity insurance (PII) and are heading for intervention, as the fallout resulting from last year’s renewal season enters its final phase.
Meanwhile, an SRA board member has objected to barring unrated indemnity insurers from offering solicitors cover by setting a minimum ‘B’ rating from one of the recognised credit rating agencies.
The proposed u-turn, made on client protection grounds, was recommended in a SRA consultation document presented to the monthly board meeting in London yesterday.
Executive director Richard Collins told the meeting “probably around 10 firms” which had not renewed their PII by 1 October were believed to have failed to take “the right steps to close down” since the SRA’s deadline for closure of 29 December. They now risked intervention, he warned.
The SRA last week named 136 firms as having entered the extended indemnity period and has since come under fire from firms on the list that planned to close in any case, including the south London practice of former justice minister, Helen Grant.
Mr Collins acknowledged the sensitivity by stressing that the list was “a very simple factual list of names that firms that entered the extended indemnity period… and does not make any judgement about the reasons why firms are on that list”.
He claimed the closure process had been handled successfully by the SRA. It had been “a very well controlled exercise”. The number of firms that had failed to close in an orderly way was “very small”, given “the potential number of firms that we might have had to be dealing with”.
Board member Martin Coleman, who is head of the competition group at City giant Norton Rose, said any decision to remove unrated insurers from the list available to solicitors would amount to “a further obligation that we are imposing on the profession”. Such a rule should only follow clear evidence of the risk posed to clients “without the additional burden” and an “understanding of the consequences of imposing an additional regulation”. The consultation was unclear on these points, he argued.
He complained that while the document spoke of the impact of a 5% premium increase on firms, it also said that rated insurers costed their premiums at 15% higher than unrated insurers. “Instinctively it seems to me that firms ought to be making their own judgement” how they spend money on PII, he said.
Crispin Passmore, in his first board meeting as the SRA’s strategy director after he was recruited from the Legal Services Board, responded that it was “difficult to put numbers” on the consequences of unrated insurers becoming insolvent, but highlighted the potential dangers of unrated insurers entering the market and quickly gathering a significant market share, while consumers’ access to compensation was limited.
Mr Passmore said the SRA believed that raising the rating threshold would still give solicitors the option of two price categories – those insurers currently rated ‘A’ and those currently unrated which would become ‘B’ rated.
Speaking later to Legal Futures, he said any future decision to implement the consultation paper’s recommendations was likely to be “a very fine balance” and acknowledged that Mr Coleman had a “valid point” in being concerned about the price impact.
The board approved the consultation paper for distribution. It will be sent out to the profession in the next fortnight.
The meeting’s chairman, Charles Plant, paid tribute to Antony Townsend, who retires as SRA chief executive at the end of this month. Mr Townsend in turn paid tribute to executive director of supervision Samantha Barrass, who leaves next month to head the Gibraltar Financial Services Commission.