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SRA under fire for making Compensation Fund cover uninsured firms

Des Hudson, chief executive of the Law Society, has attacked the SRA over its plans to make the Compensation Fund pay for claims against uninsured law firms.

23 April 2012

The insurance industry currently covers the cost through the assigned risks pool.

Calling on the LSB to block the move, Hudson said transferring cover for uninsured firms to the Compensation Fund would be a “costly burden” on the profession.

“The provision for insurers collectively to meet the losses from uninsured firms, as they do in motor insurance, is a fundamental part of the arrangements for solicitors’ PII,” he said.

“The SRA’s proposal to transfer cover for uninsured firms to the Compensation Fund would be a costly burden on the profession. It is quite wrong to make a change of this sort without full consultation and a detailed impact assessment.

“Despite an earlier undertaking by the SRA to consult, this has not happened. We urge the Legal Service Board to reject the proposals, and to insist on full consultation.”

The SRA announced last week that the ARP would close from September 2013, after a year in which the pool would be jointly funded by solicitors and the insurance industry.

The regulator said that in the course of the next indemnity year, provisions would be made to transfer responsibility for uninsured firms from the ARP to the Compensation Fund.

Under the plans, the fund would pay compensation to clients with claims against firms which were not insured from 1 October 2013.

Antony Townsend, chief executive of the SRA, said the society’s claims were “without foundation”.

He said the SRA’s intention to make the change was announced in April 2011 at the end of the first stage of the consultation on changes to the indemnity rules.

“The issue was then covered in the SRA’s second consultation on these changes in the consultation paper published in October 2011. Our response to that, second, consultation has just been published.

“Given that the society covered this issue fully in its response to the second consultation, it is not tenable to suggest that the SRA has not consulted”.

Townsend said the suggestion that the change would result in a “costly burden on the profession” was also “wholly untenable”.

He said the profession already met the cost of these claims through insurance premiums.

“Furthermore those premiums attract the additional (lost) cost of brokers’ fees and insurance premium tax. Meeting these claims through the Compensation Fund is a more cost efficient mechanism.

“As the society well knows, the ARP is to end after 2012/13. The society’s proposal would result in further increased cost to the profession as it would require the maintenance of the operational underpinnings of the ARP to manage and apportion the cost of claims between insurers for a very small value of claims in any one year.

“In the 2010 indemnity year claims were received in respect of just 14 uninsured firms with a total estimated cost of £350,000.”

In a separate development, the SRA has said that, in response to requests from firms, it would publish the credit rating of insurers.

The changes will be discussed at the SRA’s board meeting next month.

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Professional indemnity Regulators