Regulators have voted to drop the minimum level of compulsory professional indemnity insurance (PII) cover for solicitors to £500,000.
The Solicitors Regulation Authority (SRA) board voted almost unanimously for the new level this week, following a six-week consultation.
However, solicitors have warned that the change could be problematic, even leaving firms potentially exposed.
The Law Society has warned that the new minimum will not necessarily lead to lower premiums, could leave smaller firms unable to secure more than the minimum cover, and creates greater risks for clients.
Joanne Staphnill, senior solicitor at Robin Simon, a Triton Global company, says: “This news is a hugely significant development for the legal services industry and solicitors’ PII brokers and insurers alike, and could lead to a fundamental change in law firms’ approach to their PII cover.
“At the moment solicitors’ PII policies up to the current £2m or £3m minimum level all tend to be very similar, and the current MTCs (minimum terms and conditions) mean that it is all but impossible for insurers to decline claims or avoid policies. However, when the SRA implements this change, firms and their insurers will have a free rein (over and above the new £500,000 minimum) to negotiate over both the level and wording of the PII insurance.
“For instance, for insurance above the new £500,000 minimum amount, insurers could potentially seek to remove protections that law firms may have taken for granted until now. In future, claims could be declined for problems such as late notification, leaving the firm with a potentially substantial uninsured exposure.
“Law firms will no longer be able to assume that their policy is essentially identical to previous years’, and will have to invest in more detailed training for staff to make sure that potential problems do not go unreported. Law firms will also have to work more closely with their brokers and insurers when purchasing insurance above the new £500,000 minimum amount, to understand any differences in the scope of the policies on offer and how those differences could affect the future financial stability of the firm.”
Charles Plant, chair of the SRA board, says: “Our reform programme aims to make the SRA’s regulation more proportionate and better targeted, while maintaining critical protections for consumers.”
The SRA board also voted to increase the amount that may be withdrawn from residual client balances and donated to charity without SRA approval from £50 to £500.
However, both changes are subject to approval by the Legal Services Board.
