Law firms had up to 6th November to inform the SRA if they had still failed to obtain insurance. Latest reports suggest that 79 firms have informed the SRA that they will be winding down having failed to obtain insurance, while just over 100 firms have managed to secure cover. This leaves around 50 firms who notified the SRA after 1st October that they were seeking cover, still unaccounted for. The suspicion remains that there may be other firms who simply have not notified the SRA at all of their failure to obtain cover.
What does this mean for firms? The SRA has, so far, taken a fairly low-key approach to firms which have delayed in reporting their insurance position, but with the 6th November deadline now well past - itself over a month since the initial 1st October deadline - the SRA are now indicating that enforcement action will be taken. This is likely to involve professional misconduct charges, and enforced closure of firms in some cases.
Some in the profession have challenged the current PII arrangements - suggesting that the regulatory requirement for all firms to have professional indemnity insurance in place is unreasonable, particularly in light of the current state of the market.
While it may be an understandable gut reaction from those whose firms are at risk of closure, such a move would be out of kilter with the professional status of solicitors. Professional Indemnity requirements are common to the vast majority of professions, and have been in place for close to 40 years. It is easy to forget that the requirement was introduced in context of a rise in claims against professionals, to protect both the professional, and equally importantly, the client against the still relatively rare occasions when things go wrong. It also helps preserve public trust in the profession as a whole.
The current arrangements also need to be viewed against the backdrop of a legal market which has dramatically increased in size and is involved in far more complex and high value transactions than was the case in 1975.
There is a danger that firms who try to continue to trade without insurance beyond the 90 day extension period are putting themselves, and their clients at risk. The majority of firms that have struggled to obtain cover are those that already have significant claims records, or are small firms undertaking a high percentage of high risk work. This tends to mean residential conveyancing, which continues to account for close to 50% of claims (by number and value) against the profession, according to Lockton statistics.
The current insurance market for solicitors is a direct consequence of the fact that smaller, conveyancing orientated practices account for up to five times as many claims per partner as larger firms undertaking a more diverse range of work. Amongst all the hyperbolic headlines it is easy to forget that a significant percentage of firms continue to pay lower premiums than they did more than 10 years ago under SIF.
The answer is therefore not, as a small minority of solicitors appear to believe, to evade their regulatory obligations. This is a short-term non-solution which only serves to jeopardise their clients and the reputation of the profession.
Firms that experienced difficulty obtaining insurance terms from a rated insurance market at this renewal are advised to speak to their broker now about measures that they may be able to put in place to avoid/reduce this problem at future renewals. Insurers are concerned about three things, principally: patterns of claims activity, lack of risk controls, and financial insecurity. Lockton can help firms that may be experiencing difficulties in any of these regards. If you are a low/no claims practice which simply falls into the 1-4 partner, high percentage conveyancing bracket, there may be other measures you can take to differentiate yourselves from some others in the profession.
To discuss your needs further, contact your Lockton broker, or if you are not a client, and would like to see how Lockton could help you, contact our solicitors team.
Calum MacLean is a solicitor, formerly in Private Practice, and is Risk Manager for Lockton Professions.