The Solicitors Regulation Authority (SRA) has published new claims data as part of its attempt to reform the minimum terms for solicitors’ professional indemnity insurance (PII).
It shows that ninety eight per cent of solicitors’ PII claims are settled for less that £580,000, well below the current indemnity limit of £2 million. Plans to reduce the limit to £500,000 were thrown out by the Legal Services Board in 2014 (see Brunel News, October 2014).
The statistics show that the current high level of cover appears to be out of proportion with the risks, particularly for smaller firms. More than half of claims, where insurers stated the reason for the claim, relate to conveyancing matters and the vast majority of claims are settled well below the indemnity limit.
The SRA is keen to take a proportionate approach to setting the minimum terms of cover, so that clients have the right level of cover without driving up costs unnecessarily for firms and their clients. It says that sole practitioners typically pay around seven per cent of their turnover in premiums, the highest proportion of any class of law firm.
The analysis will be used by the SRA to inform the development of proposals for changes to the PII regime. “We want to create a more flexible way for firms to provide adequate and appropriate cover without spending more on premiums than is really necessary. That could mean lower costs for firms, and therefore lower costs for the users of legal services,” said Crispin Passmore, SRA Executive Director, Policy.
Critics say the data fails to include statistics from insurers no longer writing business and that lower cover would offer less protection for consumers.
The Law Society accepts that the SRA’s PII regime should reviewed on a regular basis. “Any proposed changes need to ensure the right balance between protecting consumers, protecting solicitors and promoting a competitive insurance market which enables affordable PII costs for firms,” it said in a statement.
“The cost of PII cover is a real burden for many law firms, so any moves that will reduce the cost are welcome,” said James Page, Director – Head of Client Servicing, Brunel Professional Risks. “However the real driver of insurer’s payments and consequently premiums is the breadth of cover within the policy itself, not the limit of indemnity. As such, a reduction in the required limit may not result in the premium savings anticipated.”