Speccing

Peter Dobie is underwriting manager for Allianz Cornhill Legal Protection. He has over 25 years experience in the insurance industry, predominantly within Legal Expenses and has worked for Royal Sun Alliance, DAS and most recently for Wren Insurance Services (Brit).

Here is yet another legal term and issue to get your heads around, and a controversial subject that is becoming increasingly important for brokers and insurers alike — known as “speccing”.So what exactly is meant by speccing? It occurs when a solicitor decides not to insure — with an After The Event (ATE) legal expenses policy — the outcome of a particular personal injury case taken on a conditional fee agreement, because the solicitor is confident the outcome of that case will be a win and does not therefore see the need for ATE insurance to cover the risk of paying the other side's costs.With solicitor professional indemnity renewals falling due in October, speccing is a questionable practice which could have serious implications for solicitors, their clients, their brokers and their insurers.Some may look at the idea of speccing and ask ‘Why is that a bad thing? Surely the solicitor is merely taking a sensible view on the need for insurance and exercising professional choice?'Unfortunately, while the behaviour may appear harmless enough, it is opening up both solicitor and client to real financial risk. Effectively, by speccing, a solicitor is taking on the financial risk attached to the outcome of the personal injury case. In other words, should (despite the solicitor's expectation) the case be lost rather than won then someone — presumably the solicitor — has to pick up the other side's costs.Perhaps it is time for both professional indemnity insurers and brokers to wake up to what is going on. In the lead up to the 2006 renewal season, are they asking the right questions about speccing and how the practice of speccing affects the PI cover? Where does speccing leave a solicitor's practice – potentially without PI insurance? And where does that leave a client – potentially without a financial remedy if the solicitor's practice fails under the pressure of attritional financial risk?This behaviour by a solicitor could be considered as self insurance. If so then, as solicitors are not (usually) authorised by the relevant bodies to insure, this is an extremely serious matter — the transaction of unregulated insurance.So, if speccing is a problem, what can be done?It would help if the Law Society clarified its position on the practice of speccing, ensured there are very clear rules as to what is and is not acceptable, and then enforced those rules with vigour.The FSA should also take a look at what is going on. On one view there is a mass of unregulated insurance being transacted right under its nose! At the very least, there is a question over, say, ICOB 7.4 (for those solicitors who are regulated as an insurance intermediary) and conflicts of interest.ATE insurers should take a hard line to ensure that solicitors stick to the terms of their business agreements and insure all of their personal injury cases. The practice of speccing damages ATE insurers as they are being denied the apparently less risky cases and this distorts the underwriting pool through selection.Speccing of personal injury cases by solicitors is not only questionable from a legal and regulatory perspective, but also it cannot be said to be in the best interests of clients. And, it further undermines the already fragile ATE market which is a situation all stakeholders in that market should address.It is not a harmless dilemma of choice or exercise of freedom. It is a potentially serious business with potentially serious consequences.