On the back of several months of issues, the Solicitors Regulation Authority (SRA) is reviewing the risk to clients when a firm’s professional indemnity insurer gets into financial difficulties.
Currently, to provide PII an insurer must be authorised by the Prudential Regulation Authority (PRA) or be an EEA insurer eligable to write insurance business in the UK.
The SRA has always deferred to the relevant regulatory bodies to vet the financial stability of insurers, but following recent insolvency events decided to review the situation.
In May, the SRA’s Standards Committee agreed for further work to be carried out including an assessment of the full implications of introducing a financial rating criteria.
The review will be completed in time for any decisions to be made for the indemnity period starting on 1 October 2014.
Agnieszka Scott, SRA Director for Policy, said: "We have always made our position clear on insurance companies; we don’t regulate them, that is the job of others. Our role is to ensure that they are regulated and approved to provide cover in England and Wales.
"There have been numerous calls for us to allow rated insurers only, but we have resisted this restriction as it would be an unwarranted barrier to entry into the solicitors PII market. Until now, it would have been disproportionate for us to introduce a financial rating criteria.
“However, in the light of the insolvency of Lemma last year and recent developments with Balva, we decided that we need to look again at the impact of introducing a financial rating criteria.”