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The Solicitors Regulation Authority hopes that changes to Professional Indemnity Insurance (PII) will have a positive impact on premium levels, particularly for smaller firms, but Jake Fox, MD of JM Glendinning Professional Risks, believes they might have the opposite effect. He spoke to Yorkshire Legal recently to share his views on the proposed changes.

The Solicitors Regulation Authority (SRA) has recently announced another wide-reaching consultation around the provision of financial protection for law firms. I would encourage all firms to read the consultation and to form an opinion on the potential impact that any proposed changes might have.

The consultation includes some recommendations that will represent the most radical changes to professional indemnity insurance (PII) for the legal profession since the Solicitors Indemnity Fund was disbanded back in 2000.

Some of the proposed changes to PII are as follows:

• Reducing the maximum single claim limit to £500,000 (£1 million for conveyancing)
• Keeping the need for a six-year run-off period of insurance after a firm closes but capping the overall level of cover at £3 million for firms that have done conveyancing work and £1.5 million for other firms
• Removing the need for compulsory insurance to include cover for large commercial clients

The SRA hopes that these changes to PII will have a positive impact of premium levels, particularly for smaller firms, but our view is that they might have the opposite effect.

The SRA states that 98% of claims made against law firms fall below £500,000. If that is the case, why would insurers give a significant discount in premium to a reduction in cover from £3million to £500,000 when the majority of claims will still fall within this new policy limit?

Most firms will want to consider buying additional cover above the £500,000 limit anyway, and top-up cover may become more expensive and not offer comparable cover. In addition, firms seeking run-off cover may have to buy a top-up annually, which will be an expensive inconvenience, and the availability of cover cannot be taken for granted.

What does this mean for clients?

They may lose out, too, as asking your solicitor how much cover they have when instructed may not be relevant, because it is the level of cover at the time of the claim (or notification of circumstances, if earlier) that counts.

I feel that there is an agenda among some participating insurers, and to some extent the SRA, to ‘water-down’ the current PII arrangements. The SRA clearly feels that there needs to be a more flexible approach to PII in order to ensure that it can compete with other regulators that are increasingly threatening its place in the legal services industry. Our fear is that this may end up being done to the detriment of law firms, clients and staff.

The consultation runs until 15 June.