The Solicitors Regulation Authority (SRA) have proposed to reduce the minimum level of professional indemnity insurance.
Released by the regulator today (23/03/18), their consultation puts forward ways to improve the balance of cost and access to legal services for consumers, inviting professionals to share their view.
Highlighting the importance of instilling public trust in the legal sector should things go wrong, the SRA acknowledge the importance of indemnity insurance as well as the Compensation Fund, but go on to suggest that their ‘current approach is too rigid’.
Acknowledging the diversity of the market and differing ways in which professionals are practising, the regulator states that for those working in area of low risk, they may be ‘spending more on cover than is necessary’. For small firms, it states, this could be a heavy burden.
With this is mind, as well as the proposals from the Competition and Markets Authority, the SRA have set out proposals which aim to offer firms more flexibility, whilst ensuring that the public retain confidence in the profession.
Within the report itself, one of the key proposals relates to the reduction in the minimum level of professional indemnity insurance; this currently stands at £2 million and rising to £3 million for some structures.
Though the SRA suggest that this is dropped to £500,000, they have set out a higher limit for conveyancing, at a minimum of £1 million. This increase, they state, reflects ‘the higher risks of working in that area and making sure the public are protected where problems are most likely.’
The regulator states that if this leads to lower insurance premiums, it could encourage new entrants into the market. As well as potentially reducing costs for small firms in particular, it may also increase competition.
In addition, the SRA also propose to bring in a conveyancing component to insurance, meaning that only firms that require cover for this work need to purchase it.
Looking to the run-off period, the SRA state that they would maintain the six-year time frame but propose to introduce a cap of £3 million for firms that require cover for conveyancing services. This would fall to £1.5m for other firms.
The regulator also shared its findings of insurance data collected over a period of ten years, revealing that approximately £1.6 billion was paid to legal service users from the MTCs layer of insurance cover.
Where the area of law was specified, conveyancing had the highest proportion of the claims total value at 51%.
Also within the proposals, the SRA suggest reducing the maximum payment from the compensation fund – from £2 million to £500,000. The conusultation sets out that eligibility from those with net financial assets exceeding £250,000 – approximately 5% of applications – should be stripped. This aims to stave off threats which could otherwise threaten the compensations fund, including so called ‘get rich quick’ schemes’.
Addressing an audience at the annual Risk and Compliance Conference from the Law Society, chief executive of the SRA, Paul Philip stated: ‘By changing our eligibility criteria, we will be able to focus better on the people most in need of our support, those who have been placed in genuine financial hardship by the dishonest actions of solicitors.’
Open until 15 June, the consultation can be accessed here.
