The Solicitors Regulation Authority (SRA) has launched its latest consultation aimed at reducing the level and breadth of compulsory minimum cover required for solicitors’ firms in England & Wales.
Their objective is said to be an attempt to shave what they estimate as 5-10 per cent off the cost of insurance in order to encourage new entrants to the profession and increase access to justice. The current requirements provide for £3m cover any one claim for incorporated practices and Alternative Business Structures (ABSs), and £2m for partnerships and sole practitioners.
Proposed changes include reducing the level of cover to £500,000, but £1m for conveyancing services, with the latter limit applying only to firms which in fact do conveyancing.
In our opinion, the proposals are misconceived for several reasons, including –
- They are based on a flawed dataset of ten years’ claims, which omit the figures of insurers which have left the market and may be expected to have experienced some of the larger losses;
- They fail to recognise that even based on their own figures, which must represent a minimum exposure, most firms will have to buy more cover, and the cost of replacing the difference for the smaller firms they may hope to help will be significantly higher than any saving, due to the impact of minimum premiums;
- Their proposed changes will not address their concerns about the cost of run-off cover – instead, they will add significantly to the cost of closing down, by forcing firms to buy extra cover – even in cases where they have been taken over and have a successor practice;
- They say that 98 per cent of claims would be covered by £500,000 cover, when previously they said the figure was £580,000, which we understand to be due to rounding of minor percentage points – failing to address the fact that losses will fall on a random selection of claimants;
- They will create more scope for coverage disputes, for example aggregation or non-disclosure issues, resulting in greater need for firms to pay for separate advice;
- They ignore the fact that the claims made basis on which PII policies operate means that providing information to consumers on the levels of cover current at the time of the retainer is meaningless in approximately 90 per cent of cases – even if they are capable of realising that the indemnity limit needed to cover a claim may be approximately doubled by claimants’ costs, interest and any CPR Part 36 uplift on damages and interest;
- They present a serious risk that reduction in compulsory cover for financial institutions will result in large numbers of small firms being removed from lender panels, increasing costs for consumers who will either have to pay for dual representation or face less choice.
In short, the proposals are most likely to damage those whom the SRA is trying to help. A link to the consultation can be found on our News Page https://www.legalrisk.co.uk/news/.