Insurers say proposed two-year wait for changes to the assigned risk pool will cause instability
Insurers have slammed the Solicitors Regulation Authority’s (SRA) latest plans to reform solicitors’ professional indemnity, calling for radical changes to the assigned risk pool (ARP) to be brought forward a year.
The SRA’s consultation paper says that discussions should take place immediately over radically scaling back the ARP by 2012.
These talks could end ARP cover for law firms unable to acquire cover on the open market. Those firms would then be forced to close.
The policies would be placed into run-off, which could be paid for by a levy on all law firms. Insurers could contribute through a premium levy to cover policies in run-off.
But insurers are unhappy that the plans are only up for discussion, rather than recommended. They want changes to the ARP to begin next year, insisting that 2012 is too long to wait.
Furthermore, there are concerns that the paper doesn’t go far enough in reforming the restrictive terms and conditions insurers are obliged to follow. The reforms are unlikely to attract back insurers such as Hiscox, which pulled out of the sector last year alongside Catlin.
Hiscox PI underwriting manager Justin Bowen said: “The key issues of covering firms that are fraudulent, misrepresent themselves to insurers or don’t pay premiums, and the continued existence of the ARP, would prevent us from re-entering.”
ABI director of general insurance and health Nick Starling said the proposed reforms would prolong market problems such as ARP reform, and would not help attract qualifying insurers to the market.
Zurich legal professions manager Jenny Screech added: “Zurich’s concern is that the proposals may not go far enough to ensure the stability of the market in the short to medium term. The delay in introducing other much-needed reforms until 2012 is also an issue.”
For 2011, the consultation paper recommends scrapping the 1 October renewal deadline for solicitors’ PI and halving the time firms can stay in the ARP to six months.
UIB divisional director Simon Lovat said that scrapping the single renewal date would increase costs for brokers supplying PI products. He said renewing on a single date gave economies of scale in a market with tight margins.
“It will make a number of brokers revaluate whether they would want to offer solicitors’ PI,” Lovat said. “I think it will increase the generalists but decrease the specialists.”
SRA chief executive Antony Townsend called for an industry response to the consultation paper, which followed a review of the PI industry by consultancy Charles River.