£500,000 minimum PII is “misguided”

Proposals to reduce the minimum level of compulsory professional indemnity insurance cover for solicitors to £500,000 from £3m is “misguided” and would particularly affect smaller law firms.

Frank Maher, partner at Legal Risk, warned that the proposed costs savings were based on “flawed reasoning” and would have adverse consequences for many firms, in a detailed letter to the Legal Services Board (LSB) consultation. For example, the Solicitors Regulation Authority (SRA) suggested the cost of insurance could drop by 5-15% but, Maher says, if insurance usually costs less than 5% of a firm’s overheads then the reduction would amount to only a 0.25% saving for the firm. 

The SRA board voted almost unanimously for the new level at the beginning of July, although the change is subject to approval by the LSB. 

Maher told NLJ: “The real issue is that the cost saving, if any, is small for a vast reduction in cover. 

“It will take away people’s legitimate expectation of cover for work they have already done, and the cost of buying back the extra cover if they wish to do so is likely to be more than it would have been, particularly for smaller firms, so it is likely to increase rather than reduce the cost for smaller firms. I don’t see the point of them doing this. It is well-intentioned but misguided. I don’t think there is enough evidence to justify the change.”

Maher, who is in favour of a wholesale profession-wide review of indemnity cover, also criticised the length of the consultation process.

“It was quite rushed, only six weeks, so everyone was contributing blind, so to speak, whereas you benefit from hearing other people’s views. This issue is so important that I think the Law Society or SRA should hold a day’s conference where people can discuss and exchange information before going to a full consultation.”

He pointed out the scale of the problem, where in the past six years, “solicitors have bought approximately 4,500 insurance policies from insurers who have subsequently become insolvent”.

The Law Society is also opposed to the SRA proposal and has said it will not necessarily result in lower premiums, could leave smaller firms exposed and creates greater risks for clients.