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SRA’s insurance reforms “piling too much risk on consumers”

Chambers: Conveyancing limit inadequate

The Solicitors Regulation Authority’s (SRA) plans to reform professional indemnity insurance and the compensation fund put too much risk on consumers without any commensurate benefit, a watchdog has warned.

“There is a need for the SRA to be realistic about the risks that consumers can reasonably be expected to both understand and manage,” the Legal Services Consumer Panel said in response to the SRA’s consultation.

“There was little recognition in the proposals of the importance of ensuring consumers can understand where and to what extent they are and are not protected when choosing a solicitor.

“We believe that much more needs to be done to get the balance right for consumers who will be exposed to higher risks and reduced redress mechanisms, if these proposals are implemented as proposed.”

Panel chair Sarah Chambers said it was “reluctant” to support the proposal to lower the level of minimum compulsory cover to £500,000 for any one claim, and considered £1m cover for conveyancing to be inadequate.

“We accept some of the arguments put forward by the SRA, but for us to support a decision of this magnitude – that involves transferring substantial risk from firms to consumers – we would need to be convinced there would be at least commensurate benefit for consumers. No such evidence has been presented.”

The panel questioned the completeness of the data used by the SRA to justify these proposals, noting also that it said 98% of claims fell within the proposed £500,000 limit, when previously it put the figure at £580,000.

It continued: “Although the SRA notes that there is likely to be a 7-19% saving for firms in insurance premiums, as noted above there is no guarantee that firms will pass on these savings to consumers and no comparable evidence from other sectors or jurisdictions that such savings have been passed on.

“The truth of the matter is that the SRA are proposing that consumers lose current protections, without being certain of gaining anything. The risk of being underinsured would be transferred to consumers at marginal or no benefit.

“This would not be a fair or desirable outcome and we believe it would ultimately erode trust in solicitors and devalue one of the things that sets them apart from other providers of legal services.”

Ms Chambers’ letter noted how, throughout the consultation document, the SRA referred to the obligation on firms to have appropriate insurance in place.

“The SRA has noted that this is often achieved with the procurement of top-up insurance. However, evidence suggests that top-up insurance is often more expensive than the baseline cost of insurance. Therefore, it cannot be certain that firms will readily choose this option.

“Moreover, the SRA has not outlined any proposal to focus supervisory activities on ensuring that firms have appropriate cover.”

If the change went ahead, she continued, the SRA would have to impose an information requirement on lawyers to make it “very clear to consumers when their insurance cover was not high enough to cover the consumer’s assets”.

The panel also opposed the aggregate cap on the level of claims made during the six-year run-off period and the changes to the compensation fund, which it said were proposed without providing enough data on the historic operation of the fund to make a judgement.