Firms regulated by the Council for Licensed Conveyancers (CLC) will have to submit at least one application for professional indemnity insurance (PII) two months ahead of the renewal deadline, under plans agreed by the governing council and being submitted to the Legal Services Board (LSB) for approval.
Insurers receiving applications will then be required to respond no less than one month before the deadline, on 1st June, in a bid to reduce the risks involved when firms and insurers take renewal right up to the 30th June cut-off.
Despite requests from insurers, changes to the CLC’s insurance rules will not include removing integrated run-off cover. Run-off cover is integrated and should be priced into a firm’s annual policy under the CLC’s scheme. Some insurers argued that they should be separated, and a run-off premium made payable in all cases, with no cover if not paid.
The CLC concluded that the risk to consumers of run-off cover not being in place was too great, with the experience of other regulators showing that many firms do not pay their run-off cover premium.
A policy paper before the council said:
“Insurers seem to have regarded the CLC’s integrated policy as ‘free run-off cover’. Most have made clear that they have not priced the risk of run-off provision into the annual premium. There have been no representations that to do so would not be possible.”
The CLC’s council has now backed a series of PII reforms following a recent consultation, which will now go to the LSB for final approval.
The CLC said the idea of requiring firms to submit one proposal by 1st May – and for the insurer to reply by 1st June – emerged from the consultation and “are intended to make the renewal process smoother than it has been, allowing practices time to seek alternative cover if needed and be able to plan for the outcome better”.
The council also agreed to introduce a requirement for an automatic 90-day extension of cover in the event that a practice is unable to renew cover, with the last insurer paid a pro rata premium based on the most recent annual premium. The practice may not take on new work during the extended cover period. In the event cover is found during that period, the new insurer will backdate the policy to 1 July.
This will not apply to firms whose insurer has notified them and the CLC, no later than 31 March, that it will not offer renewal.
Despite support in the consultation for allowing a firm and insurer to agree their own excess level, the council decided only to allow this when the CLC has approved it following a joint submission.
The paper said:
“Removing all controls does not seem viable given the attempts by one insurer in 2021 to set extremely high excess levels to encourage certain behaviours by practices. The CLC can allow exceptions to the excess limits where the insurer and the practice can set out a clear and compelling rationale for that. Over time, this oversight could be relaxed if the CLC considers that the risk of high excesses has declined.”
Although the consultation was not about cyber cover, CLC used the opportunity to take opinion. From that there was significant support for mandatory cyber-cover but also concern about its cost and the wide variations in what is provided by different policies. The council will return to whether there should be defined minimum terms and conditions for cyber-cover.
In the meantime, the CLC will review its guidance on best practice in cyber-security and urge all businesses to review their arrangements in the context of the ever-changing risks.
It also pledged to work with brokers and insurers to improve the availability of cover for start-up and firms transferring from SRA regulation.
CLC chief executive Sheila Kumar said:
“Our primary responsibility is to protect the public interest, which is why we could not approve certain measures supported in the consultation.
But we are very conscious of the need also to be fair to our regulated community and insurers alike. We believe that the package of reforms we have agreed achieve this difficult balance, as we continue to work on other important issues, such as cyber-insurance.
A robust and sustainable professional indemnity insurance scheme is a cornerstone of our regulatory approach, and we look forward to continuing our constructive engagement with all those who have a stake in it.”
