Regulator launches fresh consultation on professional indemnity rules
The Solicitors Regulation Authority (SRA) is continuing to push for a reduction or removal of the minimum level of professional indemnity insurance solicitors need to buy.
This is despite strong opposition and the Legal Services Board’s rejection of the SRA’s proposal to lower the minimum last year.
The SRA has launched a new consultation on changes to the rules governing solicitors’ professional indemnity insurance (PII), which will invite the market to consider again whether the minimum PII limit should be cut or removed. It is seeking evidence from insurers to back up its proposals.
The regulator is also inviting views on other potential changes to the PII regime, including restricting compulsory cover to a law firm’s smaller clients, capping insurers’ total liabilities to law firms under PII contracts and requiring law firms to inform consumers about the level of PII protection they have.
Interested parties have until 16 September to send feedback on the proposals to the SRA.
The regulator plans to set out detailed proposals in a further consultation in early 2016, which means the earliest any changes can be implemented is October 2016. Solicitors PII cover typically renews in October.
SRA chief executive Paul Philip said: “PII and compensation arrangements play an important part in our regulatory model. We need to strike the right balance between freeing up law firms to grow and providing appropriate consumer protection. This consultation is aimed at moving us towards a more appropriate regulatory model in this area.”
The SRA said it is issuing the new consultation against a background of the “substantial costs” solicitors face in arranging PII. It noted that the total premium for the 2014-2015 financial year was around £250m.
The latest consultation on the PII rules follows the one that was issued on 7 May 2014. The SRA also put out a call for evidence to support its proposals on 1 August last year
One of the more controversial proposals is the plan to lower or remove the minimum level of PII cover solicitors have to buy under the SRA’s minimum terms and conditions, which is £2m for a partnership or £3m for a limited company or limited liability partnership.
Last year the SRA proposed to cut the minimum compulsory cover to £500,000 on any one claim.
The LSB, which regulates lawyers, rejected this proposal, saying that the SRA’s proposals needed to be better informed by analysis of how the current insurance market is operating.
The SRA said in its new consultation paper: “We have requested from insurance companies to improve our evidence base to inform further proposals on minimum compulsory cover early next year”.
It also suggested that one option might be to remove the limit altogether. The consultation paper said: “This would maximise the opportunities for firms to negotiate limits most appropriate to their business activities with the associated reductions in cost benefiting consumers.
The SRA is keen to change the compulsory cover limit because it could enable solicitors to buy cheaper insurance.
The regulator said: “We received clear advice from some insurers during the consultation in 2014 that the reduction of the minimum limit would reduce insurance premiums.
“This was confirmed by our professional advisers. There was some evidence of lower prices being offered during the period before the LSB issued its warning notice in relation to its partial refusal of the rule change.”