Regulator approves PII reform
25th Jul 2014
The Solicitors Regulation Authority’s board (SRA) has voted to cut the minimum level of professional indemnity insurance (PII) cover required from practitioners from £2m to £500,000. The decision was made following a six-week consultation, ignoring a last-minute request from the Law Society to stop plans to change the current minimum.
Linda Lee, former president of the Society, told at the meeting of how these plans could potentially create a ‘sub-class’ of firms, shunned by clients as they could not afford anything but the minimum cover.
However, the SRA board carried out research that suggested premium costs could drop by at least 5% without harming clients, leading to an almost unanimous vote by the SRA board to vote for a change.
Chair of the Legal Services Consumer Panel, Elizabeth Davies, has described the decision as ‘disappointing’, and ‘might mean consumers will lose the current level of protection without gaining anything in return’. The watchdog found it unconvincing that the changes would lead to lower prices.
Paul Marsh, another former Law Society president, and member of the board, also spoke out against the proposal, similarly adding that there was no ‘reliable evidence’ to suggest that the move will reduce premiums. He noted that with the pressure many sections of the profession are under, the ‘fundamental problem’ is a risk that they will undertake work ‘disproportionate to the reward they see from doing the job’, and views this as unsustainable, and something that needs to be addressed.
Directly countering this view, Charles Plant, the chair of the SRA, stated that ‘our reform programme aims to make the SRA’s regulation more proportionate and better targeted’, while ensuring consumers were still protected.
The SRA released a statement after the meeting that said that this new minimum level would force firms to ensure they had ‘appropriate cover’ rather than just relying on compulsory requirements. Therefore, firms undertaking low-value transactions would no longer need to obtain higher levels of cover than necessary, for them or their clients.
These changes are as yet still subject to approval from the Legal Services Board (LSB), but it is expected that they will be made in time for October, ready for the 11th version of the handbook. The Law Society intends to urge the LSB to delay any immediate changes to PII cover.
The consultation received a total of 142 responses, 90 from law firms, of which the majority were in favour of reducing the minimum cover. However, the SRA has also stated that others disagreed with the proposals, and they could have listened to this feedback.