The Solicitors Regulation Authority (SRA) has launched an audit of professional indemnity insurers to check they have correctly declared the amount of premium income they received during the recent renewal.
In a letter to qualifying insurers, the SRA said: “It is clear that this year insurance programmes have been structured in a variety of different ways, leading to a call by insurers for an audit of the returns to ensure that declarations are compliant with the requirements set out in the qualifying insurer’s agreement.”
Capita Commercial Insurance Services will perform the audits in its capacity as the manager of the assigned risks pool (ARP). Insurers’ liability for the cost of the ARP is calculated as a percentage of their share of the annual premium take for the initial compulsory layer of cover.
Insurance programmes for law firms are often structured in layers, one of which is the compulsory layer. The SRA said the concern is that “the apportionment of premium allocated to the compulsory layer may not properly reflect the risk being carried by that layer as compared to other layers”.
In the event that the an insurer is in breach of its obligations under the agreement and has materially understated its premium take (defined as their percentage liability to the ARP being more than 0.1% lower than it should be), Capita will be able to adjust all of the insurers’ percentage liability to the ARP. Following the outcome of the audit, the SRA will consider whether the rules need changing.