The Solicitors Regulation Authority (SRA) has instigated another consultation regarding proposed changes to the profession’s professional indemnity insurance (PII) requirements and compensation scheme.
This was released on the SRA website on Friday 23 March 2018 and follows an earlier consultation which was rejected by the Legal Services Board in 2014. This consultation closes on the 15 June 2018.
This consultation’s key proposals include:
- Reducing the claims limit: currently firms must have minimum cover of GBP 2 million, rising to GBP 3 million for firms with certain structures. They plan to reduce this to GBP 500,000 for all firms apart from claims for conveyancing services. Citing some 98% of historic claims in their data set would have fallen within this limit
- Having a higher limit for conveyancing: those carrying out conveyancing services would need a minimum of GBP 1 million cover, reflecting the higher risks of working in that area
- Flexibility around who the cover should protect: there would be no change for the minimum terms to include cover for financial institutions, corporate and other large business clients. They also propose to introduce a conveyancing component in insurance so that only firms that need cover for this work are required to buy it
- Make changes to run-off: they would maintain a six-year run-off period, but aim to tackle the problem of how expensive this type of cover is by proposing caps of GBP 3 million for firms that need conveyancing services cover and GBP 1.5 million for other firms. The SRA feel this would make it easier for firms to close properly and reduce the risk that solicitors delay retirement unnecessarily.
To the compensation fund:
- Greater focus on hardship: narrowing eligibility to only those people that need the most protection. This would mean that the very wealthy, or an organisation that cannot prove hardship, would not be able to make claims on the fund. Barristers and other experts also could not claim
- Reducing the maximum payment: currently the maximum sum receivable from the fund is GBP 2 million. They propose reducing this to GBP 500,000
- More robust assessment of claims: making sure the fund is not available to those whose own actions could have prevented a loss. For example, did the applicant, looking to make very high returns from a dubious investment take steps to check the legitimacy of the scheme and any products, as well as the solicitors' involvement in them.
This consultation has been much anticipated, after a rather difficult and contentious ‘false start’ the last time around.
This is a critical first step towards addressing some important issues on the future of the PII market for Solicitors in England and Wales. All stakeholders, whether they be; brokers, insurers, firms or their clients – will no doubt be focused on playing their part to ensure a practical, sensible and satisfactory way forward for the profession.
With change there is often resistance, and the debate which lies ahead is an essential part of this process.
It is imperative that the SRA takes all of the myriad stakeholders across the profession on the journey of reform. Critically, the decisions ahead must be informed not just by emotional arguments or tradition, but hard data and insight.
The significant troves of claims data which now exists must play a central role in assessing the realistic implications of the proposed changes.
As one of the leaders in the field of solicitors’ PII (currently representing the interests of well over 1,000 law firms) we will, in due course, provide our thoughts on the potentially significant impact on the profession’s protection should these recommendations be implemented.
For more information contact Martin Ellis, Head of UK Professions and Legal Practices Group on +44 20 7528 4704 or email firstname.lastname@example.org.
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