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 approved by the Legal Services Board (LSB).
From 2023, insurers receiving applications will 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 30 June cut-off.
The CLC said the idea, which was proposed following a recent public consultation, was “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 regulator will also introduce a requirement for an automatic 90-day extension of cover in the event that a practice is unable to renew, with the last insurer paid a pro rata premium based on the most recent policy. The practice must not take on new work during the extended cover period. In the event cover is found during that time, the new insurer will backdate the policy to 1st July.
This will not apply to firms whose insurer has notified them and the CLC, no later than 31st March, that it will not offer renewal.
The new Minimum Terms and Conditions and Participating Insurers Agreement which come into effect on 1st July this year will govern the policies that start on or after that date.
Despite requests from insurers during the consultation, changes will not include removing integrated run-off cover, which should be priced into a firm’s annual policy under the CLC’s current rules. 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 closing firms do not pay their run-off cover premium.
A CLC policy paper 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.”
Despite support in the consultation for allowing a firm and insurer to agree their own excess level beyond the thresholds set by the CLC, this will only be allowed when the CLC has approved it following a joint submission.
It also pledged to work with brokers and insurers to improve the availability of cover for start-ups and firms transferring from SRA regulation.
CLC director of strategy and external relations Stephen Ward said:
“We believe that the package of reforms we have agreed with the LSB are fair to both our regulated community and insurers alike, and at the same time meet our primary responsibility to protect the public interest.
A robust and sustainable professional indemnity insurance scheme is a cornerstone of our regulatory approach, and we will continue to monitor its effectiveness during the renewal round, as we do every year.
We will also turn our attention to cyber cover. Although our consultation was not about cyber cover, CLC used the opportunity to take opinion. From that there was significant support for mandatory cover but also concern about its cost and the wide variations in what is provided by different policies. As such, the CLC council will review potential approaches to cyber cover. Alongside this, we will be issuing further guidance on mitigating cyber risks and urge all businesses to review their arrangements in the context of the ever-changing risks.”
Simon Law, SLC Chairperson commented:
“We are wholly supportive of the new PII arrangements that will come into force in 2023. The 2022 renewal round is nearly complete, but some practices are only receiving renewal proposals from insurers today. This is far too close to the 30th June deadline and allows little time to negotiate any variation to terms. The new arrangements should allow for a smoother and less stressful renewal process in 2023, and the extension arrangements for practices that are struggling to renew their policy are pragmatic and sensible. We also welcome the announcement that the CLC will entertain approaches from practices that wish to set higher excesses than the turnover formula dictates.”