Almost a quarter of law firms in the assigned risks pool (ARP) had already decided to close a week before the renewal deadline because they either could not get insurance or it was too expensive, Solicitors Regulation Authority (SRA) figures have shown.
The authority has also flagged up the “serious risk” of other firms continuing to practise without insurance from this week.
Some 54 of the 224 firms in the ARP were closing as of 23 September, while six are merging. Just six had confirmed open market insurance at that date, with the rest still seeking it, with a handful requesting a waiver.
All firms that are closing or have closed will be monitored by accountants KPMG, who have been brought in by the SRA to ensure that the firms who state they are closing do so in an orderly way, particularly in relation to dealing with live client matters, old client balances, deeds and wills, the storage of old files and run-off cover.
Despite the recent ARP enforcement strategy, £8m of premiums remain unpaid for 2010/11, around two-thirds of the total. The principals of 19 firms have been referred to the Solicitors Disciplinary Tribunal for failing to pay their ARP premiums, with a further 17 referrals under consideration.
A report to tomorrow’s meeting of the SRA’s financial protection committee acknowledged the “serious risk that the cost and/or difficulty of obtaining professional indemnity insurance may result in some firms operating without insurance”.
Earlier this year the SRA cross-referred the data it had from both firms and insurers about cover, which resulted in a small number of firms being identified as practising without insurance.
“Some of these firms were unaware that they were operating without insurance as the broker they instructed had taken the premium but not passed it on. Others have practised without insurance, for example a firm in Birmingham had been operating uninsured because they could not afford it. The firm has now closed and the sole principal will be subject to disciplinary action,” it said.
This data-matching exercise will be repeated for the 2011/2012 indemnity period as soon as the information is received from the qualifying insurers.