Some insurers still trying to avoid ARP contributions despite previous July revisions

The Solicitors Regulation Authority (SRA) has rewritten the rules around solicitors’ professional indemnity insurance yet again after concerns some underwriters were exploiting loopholes to save money.

The SRA initially published a rewritten rule book – the Qualifying Insurers Agreement (QIA) – in July to tackle complaints that some insurers were not paying their fair share of the Assigned Risk Pool (ARP) costs. But the SRA changed the document again this week after realising insurers have found another loophole to avoid some ARP payments.

The ARP is the safety net for law firms that can’t get insurance on the open market, with claims costs shared out according to insurers’ market share.

“Bearing in mind the well-publicised minimisation techniques used last year and the SRA’s attempts to level the playing field, it is extremely frustrating that any insurer would use small loopholes in the rules to try, yet again, to avoid legitimate ARP contributions,” Clear Insurance Management professional risks director Daniel Innes said.

An SRA spokesman said: “We have recently become aware of a gap in the QIA regarding the declaration of relevant premium income connected with multi-year policies, which could unfairly skew the ARP percentage participations for 2011/12.”

The SRA acted after some insurers realised that they could reduce ARP costs for the 2011/12 year by receiving premium for policies between 31 January and 30 September 2011. Under the old QIA wording, premiums received by insurers in this time would not need to be declared for ARP purposes.

One industry source estimated £2m-£3m of business had already been written using this tactic.

UIB divisional director Simon Lovat said: “It’s a pity that the SRA were unable to foresee the potential loopholes they were creating in their original agreement.”

Pass notes: Minimisation techniques

Which minimisation tactics were used last year?

Some insurers would squeeze large amounts of premium into policy layers that did not need to be reported to the SRA. Another tactic was to sell a law firm a policy with a large excess, then sell a second infill policy to cover the cost of the excess. The infill policy did not need to be reported.

Why would insurers use them?

ARP costs can be very expensive for qualifying insurers. The ARP has had an average 800% loss ratio since it was started in 2000, according to a Lockton report.