Assigned Risk Pool for solicitors' professional indemnity faces the axe

The Solicitors Regulation Authority (SRA) is planning to scrap the Assigned Risk Pool (ARP), the last ditch place where solicitors can get professional indemnity (PI) cover.

The SRA is currently consulting on making significant changes to the solicitors' compulsory professional indemnity insurance regime, and the proposals would effectively mean the end of the ARP, the system under which solicitors who are unable to obtain insurance cover on the open market are given temporary cover to enable them to remain in practice.

Law firm Beachcroft LLP has welcomed the proposals.

Mike Willis, professional risks partner at Beachcroft commented: "The proposals come as the number of firms in the ARP reaches record levels. Given the historic experience of high loss ratios - close to 600% on average - and poor recovery of premium associated with firms in the ARP, it is no wonder that some qualifying insurers have questioned whether this is a market in which they wish to continue to operate.

"The lack of control over the exposure to the ARP is something which has particularly concerned insurers. However, although the proposal to scrap the ARP will be welcomed by some insurers, it will no doubt come as worrying news to smaller law firms.

"In proposing these changes, the SRA has made it clear that it is keen to maintain a high degree of client protection, while reducing the cost of the ARP to qualifying insurers, and indirectly the profession. While this proposal leaves a qualifying insurer picking up the claims, rather than the ARP, insurers may feel that this offers them an easier risk to predict and control, than a firm which continues into the ARP."

The SRA is also consulting on changes which may make it easier for firms to merge, with a proposed change to the definition of Successor Practice in the Minimum Terms and Conditions. Currently a failing firm which is looking to survive by merger can be hampered by the baggage of its past, and good firms who take on new people can find themselves unwittingly encumbered by their claims record.

The SRA is therefore proposing a right for a firm planning to close, or merge its practice with another, actively to make the choice, within 30 days, whether to trigger run-off cover under its current policy of qualifying insurance, or for the current Successor Practice definition to apply to the merged practice.

The SRA published the two consultation papers on 19 November 2009 and consultation closes on 12 February 2010.