Proposals from the “timid” Solicitors Regulation Authority (SRA) to reform the market for professional indemnity insurance are inadequate and will only worsen already fears for the future of the market, the Association of British Insurers (ABI) has warned.
However, the SRA’s blueprint has been welcomed by the Law Society and the Council of Mortgage Lenders (CML).
The ABI said the SRA “has failed to understand” that the assigned risks pool (ARP) needs to close this year – rather than October 2013 as proposed last week – and that there must be a move away from the current “one size fits all” minimum policy terms and conditions to a more flexible approach, with policies tailored to the risks and requirements of individual firms of solicitors.
Nick Starling, the ABI’s director of general insurance and health, said: “These disappointing proposals are a missed opportunity for the long overdue reform which is so badly needed. Insurers warned the SRA that a failure to make radical change would not only damage the interests of solicitors, but also reduce consumer choice. Persisting with the current situation will make insurance ever harder to find for those smaller firms who most need a policy to cover what they do, not what they don’t.
“The proposal to close the Assigned Risks Pool from October 2013 is much too late, and little else has been put forward. It is hugely disappointing that they have behaved so timidly considering the advice they received from their advisors, Charles River Associates, last autumn – that immediate and far-reaching change was needed. They have failed to heed the warning.”
Mr Starling accused the SRA of having failed in the past to control both entry to the profession and the behaviour of many of those in it. “Insurers have done their best to deliver competitively-priced insurance, but with stricter capital requirements approaching, we needed more from this review. This is a completely missed opportunity by the SRA.”
He added that the minimum terms and conditions require every firm, no matter how small, to buy the same policy as a big City law firm. Insurers believe the ability to vary the policy terms is crucial to maintaining a stable and sustainable market, he said.
By contrast, the CML was pleased by the decision not to remove financial institutions from the scope of compulsory PII for the time being. “The CML hopes that, in due course, the SRA will conclude that such cover should continue to remain integral to standard insurance arrangements,” it said.
Making cover voluntary would likely lead to a “significant” reduction in lender panels because of the work required in checking that every firm has cover, as well as increased costs for consumers, the CML warned.
Praising the SRA’s “constructive and transparent process of stakeholder engagement”, Law Society chief executive Des Hudson said the decision to maintain financial institution cover until at least 2014 was sensible, “both in the context of the other changes proposed and in view of the consequential harm, in particular, to conveyancing practitioners and their clients of such a change”.
He added: “We also welcome the SRA’s recognition and adoption of the Law Society’s extended renewal period proposals as the optimal route for reform of ARP for 2013 as demonstrative of an effective consultation process.”
Mr Hudon said the society understood the rationale for the SRA’s proposal that solicitors share the liability of the ARP with insurers in its final year. “Subject to the views of council, which will consider this important issue at its next meeting, we will continue to engage with SRA on options for ARP reform both generally and specifically during the 2012 transitional year.”
It was also pleased by the move to reduce to six months the time firms can spend in the ARP from next year, ahead of it shutting for good, as well as the plan to ensure that information about firms’ insurance cover is centrally and publicly available.
Jackie Bennett, CML head of policy, said: “It is vital that all clients’ interests – including lenders – are protected, and that a transparent, centralised system is developed to provide access to up-to-date information about the existence and scope of solicitor firms’ professional indemnity cover. We are encouraged that the SRA is taking steps to address this issue.”