If your firm is either directly regulated by the FCA or is on the exempt register and undertakes any insurance mediation activities the firm is required to have a minimum of 1,120,200 € euros (approximately £900,000 at current rates) Professional Indemnity cover, rather than the £500,000 minimum proposed by the SRA.
Law firms that undertake insurance mediation activities typically arrange ATE insurance for their litigation clients, or different types of contingency policy, such as defective title insurance for their conveyancing clients.
In the past, it has always been the case that law firms carrying on Insurance Mediation activities must continue to have cover of at least 1,120,200 € (as set by the Insurance Mediation Directive (IMD)*. When the minimum limit of indemnity for these firms (under the expiring SRA Minimum Terms & Conditions (MTC)) was £2m or £3m this was not an issue.
However, a point that was missed by many when considering the results of the recent SRA consultation into the Professional Indemnity arrangements for the profession is that, notwithstanding that the minimum level of cover looks likely to be reduced to £500,000 from October 1st, law firms undertaking insurance mediation activities must continue to have cover of at least 1,120,200 €.
Practically speaking, this means that all firms that undertake any insurance mediation activities, whether regulated by the FCA or not, should take out a minimum of £1 million Professional Indemnity Insurance cover.
The (draft) MTC for 2014 contain a provision for this, however law firms should ensure that any wordings offered by insurers and brokers continue to offer this correct level of cover for past as well as future acts.
For more information, contact Brian Balkin or your Lockton Account Manager.
* The EU Insurance mediation Directive requires those carrying on insurance mediation activities to be authorised and regulated by the FCA. Professional firms (such as solicitors, accountants, etc.) are exempt from FCA regulation where the regulated activity ('assisting in the administration and performance of a contract of insurance') is incidental to their main business. An FCA register lists all those who can carry out the regulated activity - spilt into two groups: 1) Financial services firms (firms directly authorised and regulated by the FCA) and 2) Exempt professional firms (EPF). If a firm's activities go beyond 'assisting in the administration and performance of a contract of insurance', for example advising in relation to different types of insurance contracts, then those firms are likely to require to be directly regulated by the FCA.