One of the UK’s leading insurance brokers is calling for law firms to prepare for proposed Solicitors Regulation Authority (SRA) changes to professional indemnity insurance (PII) provision, urging solicitors to seek specialist advice in advance.
Business leaders at PIB Insurance Brokers have highlighted the potential repercussions that the SRA’s proposed changes to PII could have on the profession if adopted. They have warned that purchasing protection will no longer be a straightforward process.
The call for firms to act comes as the SRA revives proposals to introduce changes to the minimum terms and conditions via its consultation process, including cutting the minimum levels of insurance cover significantly—both in indemnity limit and scope of cover.
Jon Cook, head of professions at PIB, said: “Solicitors should take steps now to seek out expert advice ahead of the potential introduction of far-reaching changes outlined in the consultation, ‘Protecting the users of legal services: balancing cost and access to legal services’.”
“The proposals are more likely to get the go-ahead this time given the time and input that’s gone into this consultation.”
“Firms need to work on the assumption these changes will happen. They need to be ready for it and fully prepared as these changes could most likely first impact those who have PII renewals in spring 2019 or thereafter.”
Cook said: “We’re urging law firms to act now in preparation. Purchasing PII has become easier recently, however, it’s going to get harder because of the need to build cover more specifically designed for each individual firm. Solicitors should seek the right level of advice to help them navigate these proposed changes before they are introduced. Here at PIB we can offer extensive expertise, knowledge and guidance to help firms manage and minimise the impact of the proposed changes.”
Key proposals outlined in the consultation, which lasts until 15 June, include:
- Revival of a proposal, previously rejected by the Legal Services Board, to reduce the minimum professional indemnity insurance cover from £2 million/£3 million to £500,000. Firms conducting conveyancing work would need £1 million cover for each claim
- Flexibility around who pays defence costs
- Doing away with the requirement for compulsory insurance to include cover for large commercial clients such as lenders in a conveyancing transaction
- Maintaining the need for a six year run-off period of insurance cover but with a £3 million cap for those needing conveyancing services cover and £1.5 million for other firms
The SRA says these changes could have a positive impact on premiums, encouraging a more competitive marketplace. It states over half of firms take out more than the minimum cover currently required and 98% of PII claims against law firms are valued at under £500,000. The SRA estimates premium savings of between 9% and 17% if the proposals are implemented.
Ged Wood, PIB regional manager, professional risks, added: “The market’s already competitive, what drives the market is claims and claims costs; it’s what drives every insurance market. Reduce the claims costs and premiums will reflect this, risk management is the key in this market—not just tinkering with the policy wording.”
While the SRA has indicated that the call for change is to improve access to legal services and cutting PII cover will potentially reduce insurance overheads, Mick Eardley, Northern regional manager at PIB, doesn’t think that will automatically be the case.
He said: “While we agree with some of what the SRA is proposing, it’s not as straightforward as it appears. While you cannot argue with the time, effort and input that’s gone into the latest consultation document, what you can argue with, is the likely outcomes given our anecdotal evidence from insurers.”
“Some have indicated it’s unlikely their premiums will change if the limit goes down and most likely not at the lower end of the scale. Some insurers have said if there’s a minimum of £500,000 they may not offer that minimum, instead keeping the cover at the current levels, because reducing the cover creates a risk for them of the business going bust with the insurer becoming exposed to even greater risk. Overall, the view in the insurance market is these proposals will have little or no effect on costs.
“Our advice is all firms need to be prepared and seek the right advice on the effects of the proposals. Ultimately we’re all about ensuring lawyers understand risk and can manage it better than they’re doing because actually that’s the main thing that does drive price down.