PII and Start-ups

PII and Start-ups

The past year has certainly provided many challenges to this industry but we shouldn’t let that overshadow the fact that we’re at an exciting time in the development of conveyancing services.

The last few years have seen an explosion of innovation with the development of new tools and technology that are revolutionising the home buying process, removing delay and uncertainty, improving client service and, most importantly of all, increasing the security of transactions. HM Land Registry’s digital deeds and its Safe Harbour scheme, along with the demands of the pandemic have massively speeded adoption of digital ID tools, for example, but there is so much more going on.

The changing landscape is opening up opportunities for entrepreneurs to set up new businesses that meet consumer needs in new and better ways.

The CLC’s approach to regulation has always been one of helping businesses to understand how they can meet the appropriate regulatory outcomes without binding practices into inflexible forms of compliance. We feel that this is the best way of providing consumer protection and choice. This approach could have been tailor-made for such entrepreneurs and we have seen increasing interest from highly experienced conveyancers wanting to make use of new tools and processes that can deliver a faster, more secure and effective property transaction.

Professional indemnity insurance (PII) is a vital element of consumer protection alongside regulation and the maintenance of high standards in the delivery of legal services. Our 2021 Risk Agenda provides helpful advice for practices on how to improve their chances of securing well-priced PII cover.

PII has become a bone of contention in the market over the last few years as firms have found it harder and more expensive to get coverage. Insurers, for their part, had been flagging that the market was hardening in significant part because of challenges in other parts of the insurance market as well as fears around certain types of claims in relation to past conveyancing transactions. Consequently, criteria have been tightened and some firms have found themselves unable to secure cover. This has, understandably, caused not only consternation in the industry but also stress and concern with the next renewal season now upon us.

While as regulators we can open the doors to innovators, insurers can also effectively block market access if they are not able to provide PII cover to these potential new business at viable rates. It is widely understood that the PII market is under the same pressure to improve profitability as the general insurance market, but it is frustrating that this pressure is having such a disproportionate impact on the legal sector when it stems, to a significant degree, from insurers’ heavy losses in other sectors.

There has also been a shift in risk profiling that is affecting new practices and practices switching between regulators. As a result, there have been long delays for these firms in obtaining quotes.

We have found that it is important for new practices to speak to every applicable broker to ensure they have a full view of the market – some insurers do not have appetite for certain types of businesses, such as sole practitioners, start-ups or businesses that were previously unregulated.

We have also heard some negative feedback around models which involve a significant amount of outsourcing or working with property developers.

Both insurers and regulators of course want a clear picture of new practices’ operating model. The CLC sets a high bar for entry to its regulated community, closely interrogating not only the qualifications and experience of lawyers wanting to establish a new firm or move an existing conveyancing practice into CLC regulation, but also the business model, financial and operational resilience, planned profitability, governance and compliance policies structures, business continuity and succession plans, the pipeline of transactions, and plans for growth.

As a result, new CLC-regulated businesses do well very quickly and it would be worrying if future new businesses were prevented from starting up not because they fail to meet regulatory hurdles, but simply because of the unavailability of PII cover.

The CLC has been working hard to support the development of a diverse and vibrant conveyancing sector that supports innovation and consumer choice. We hope that our colleagues on the insurance side will be able to find a way to enable start-ups and firms switching between regulators to get prompt responses when they seek cover for a new or changing business. The experience of the past year has been disappointing, but we hope that PII insurers will play their part in maintaining broad and diverse provision of conveyancing services through the current PII renewal exercise, and enable new providers to enter the market.

Stephen Ward,

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