The Solicitors Regulation Authority (SRA) has voted to cut the minimum compulsory cover for professional indemnity insurance (PII) from £2m to £500,000 despite strong opposition from the Law Society and the City of London Law Society (CLLS) to the speed of change and lack of consultation with insurers.
In a board meeting yesterday (2 July), the regulatory body voted through proposals designed to cut costs for the profession, commenting: ‘These proposals will ensure consumers are better protected by, for the first time, requiring firms to ensure appropriate cover rather than simply relying on meeting the minimum requirements and, at the same time, ensure the very many firms undertaking primarily low value transactions are not forced to obtain higher levels of insurance than they and their clients require.’
Other proposed changes to the indemnity insurance arrangements, including changes to the eligibility criteria for those seeking to make a claim, have now been deferred until 2015 to ‘allow for the completion of a wider review of arrangements’.
In mid-June Law Society chief executive Desmond Hudson said of the proposed PII overhaul: ‘The implications of what the SRA is planning and the possible consequences of those plans are only just beginning to be realised. Our discussions with our members and stakeholders reveal that none of us appear to have been approached in advance by the SRA in formulating these proposals or options.
‘We consider that six weeks is too short a time period to consult on and assess the consequences of such far reaching changes. To use the example of PII from the very many consultation proposals, firms, insurers and brokers will simply have insufficient time to adjust their businesses in time for the 1st October implementation which could mean that no cover will be provided for lenders in residential house transactions. Yet these changes could see the immediate removal from panels of hundreds of firms.’
Fears have also been raised, including by the CLLS, that reducing minimum PII cover could damage the ‘brand’ of the profession and increase the incidence of uninsured claims.
In its response to the proposals the CLLS said: ‘In principal we support the idea of reducing the insurance costs burden in a manner which allows firms to consider the appropriate level of cover they need (subject to a mandatory minimum.) However, it is our view that the SRA needs to have consulted with the insurer before making specific proposals. The consultation adduces no evidence that the proposals would in fact attract the costs reductions they are aiming for and the research into average claims values is out of date.’
Following the SRA’s decision to push ahead with the proposals, outgoing SRA chair Charles Plant said: ‘The majority of responses to our consultations agreed with our aim of reducing the burden of regulation. However, some stakeholders disagreed with the proposals we made.
‘We have taken this feedback on board and, where we feel respondents have a valid point, we have either decided to take a fresh look at the proposals, or look for more information.’
The proposals are still subject to approval by the Legal Services Board. If agreed, they will come into effect in time for the 11th version of the SRA handbook, which is due to go live in October.