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SRA unveils major indemnity reform plan


Cover: should corporate clients be under the compulsory scheme?

Allowing the exclusion of claims by financial institutions and an end to every law firm renewing its professional indemnity insurance (PII) on the same day and are at the heart of Solicitors Regulation Authority (SRA) plans to shake up client financial protection arrangements next year.

In a consultation published today [2], the SRA also floats the idea of removing all corporate clients from the scope of compulsory PII cover from October 2012.

The SRA’s review of financial protection was established because of the difficulties many firms were facing with their PII, and the wider problem of the huge cost of the assigned risks pool (ARP) for firms that cannot find cover.

Although this year’s premiums for the compulsory layer of cover was initially reported as £214m [3] – a surprising fall from £246m in 2009/10 – the consultation paper says the SRA estimates that the true figure for 2010/11 is about £260m. “Our view is that a number of insurers have structured policies this year so as to reduce the level of premium payable for the qualifying element of the insurance in order to limit their exposure to the ARP,” it says. The SRA recently began an audit of insurers [4] to check on this.

The SRA has put forward four proposals for implementation on 1 October 2011:

The consultation goes on to seek views on changes the SRA is considering for a second wave of reform in October 2012 as part of a “coherent and long-term approach to client financial protection that is implemented in manageable stages and which develops alongside the development and implementation of the SRA’s wider approach to regulation”:

Richard Collins, the SRA’s head of standards, told Legal Futures that the proposals sought to strip out elements of the current system that replicated the scale of the cover previously enjoyed under the Solicitors Indemnity Fund and which “take responsibility away from firms managing their own risk”.

The SRA has hitherto resisted changing the single renewal date but Mr Collins said it had looked at what market failure the single date is the answer to. Further, the administrative difficulties of rolling renewal are being addressed by work to change the operational side of the SRA, Mr Collins added.

He identified the issue of defining who is a corporate client as the main problem with excluding cover for them.