Is regulator’s data biased towards claims experience of successful insurers?
The Solicitors Regulation Authority (SRA) has published research suggesting professional indemnity insurance (PII) cover is too high for the risks involved, particularly for smaller firms.
The regulator's plans to reduce minimum cover for law firms from £2m to £500,000 were rejected in 2014 by the Legal Services Board. The SRA intends to try again—it said the new research, from insurers currently active in the market and covering the decade from 2004 to 2014, would form the basis of a formal consultation next year.
The research, Reflecting on Solicitors PII, found that more than half the value of all indemnity payments stem from conveyancing problems, and 98% of claims settle for less than £580,000. It found that sole practitioners pay, on average, premiums worth seven per cent of their turnover.
Crispin Passmore, SRA executive director, policy, said: “We want to create a more flexible way for firms to provide adequate and appropriate cover.”
However, Frank Maher, partner at Legal Risk, a specialist law firm which advises lawyers on risk issues, described the research as “distorted” and “meaningless”.
“The data is obtained only from insurers who still have skin in the game,” he said.
“That’s not a proper statistical analysis. It doesn’t include the scores of insurers who have pulled out of the market, like Hiscox, or the unrated insurers who have become insolvent, like Lemma Europe Insurance Company, Balva and Quinn. If those figures were put into the pot then the results would be different.”
Maher said the SRA had also “rather missed the point of insurance. If 98% of houses don’t burn down then, applying SRA logic, there is no point insuring houses. Insurance is there to cover losses you can’t manage. To pair it down like this is misconceived”.
He also queried suggestions from the SRA that commercial claims be excluded from compulsory cover. He said this would leave firms exposed to large claims from lenders, with a potential impact on partners, partners who had left the firm within the six-year run-off period and solicitors employed by the firm.
Maher emphasised that it is the SRA’s job to protect the interests of solicitors as well as their clients.
Finally, he said that it was “counter-intuitive” to reduce cover when the Solicitors Indemnity Fund (SIF) recently noted a “significant increase” in value and frequency of post six year run-off claims. Firms that close without a successor can still resort to SIF, which shut in 2000, but this arrangement is due to end in 2020.
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