The Solicitors' Regulatory Authority (SRA) are looking at Professional indemnity insurance (PII) again. It's important to understand the aims of the SRA and how the potential changes could affect your firm. We can help you join the discussion and become part of the consultation process.
After some of their proposals were blocked by the Legal Services Agency last year, the SRA are undertaking further consultation, with the goal of.
- removing unnecessary regulatory barriers and restrictions to enable increased competition, innovation and growth to serve the consumers of legal services better
- reducing unnecessary regulatory burdens and cost; nd
- Ensuring that regulation is properly targeted and proportionate.
These aims are fairly broad. We won't have any specific proposals until the initial consultation period is over (on 16th September). There will then be a further consultation period in the first half of next year.
Cost of Professional indemnity insurance
One of the SRA's central proposals of last year attracted criticism from Insurers, brokers, and many in the profession itself. The proposal was to reduce the compulsory PII cover from £3m (£2m for sole practioners and partnerships) to £500,000.
Our objections focussed on the negative impact on consumer protection and the minimal benefit for firms in terms of premium-savings (estimated by the SRA at around 5%).
But the SRA still has concerns on cost of cover - although, at £250 million in 2014/15 across the profession in England & Wales, it's still lower than 1999, the last year of the Solicitors Indemnity Fund. It has been smaller firms (particularly in the 2-5 partner bracket) that have tended to bear the brunt of premium changes since an open market was established in 2000. This is down to the fact that these firms have consistently cost insurers disproportionately more in claims than either sole practitioners or larger firms (20 partners or more).
Costs of the Compensation fund
There is a clear disparity between the money going in and the money coming out of the Compensation Fund. £8.4m was allocated to the Compensation Fund last year from practicing certificates. In contrast, the average annual payout is now £20m, according to the SRA discussion paper.
Misuse of client funds are a significant element of the payouts, which is why the SRA is looking again at the rules on client money.
Discussion paper and consultation questions
The discussion paper and the associated consultation are comprehensive and wide ranging. We are speaking with our clients about how the changes might affect them and the best ways to contribute to the discussion.
You can view, and respond to the full list of questions the SRA are considering via their online consultation questionnaire.