Don't tar all unrated insurers with the same brush

Recent collapses don't justify an SRA ban on unrated insurers, argues Clive Sutton

The question of the financial stability of professional indemnity insurers has always been of great importance to sole practitioners. Professional indemnity insurance is one of the major costs of any sole practitioner. For these solicitors, it accounts for more than 6 per cent of their gross profits, as opposed to 2.5 per cent for other firms, according to the SRA's consultation. For sole practitioners with any claims record it can be considerably more.

The opening of the market to allow entry of competition has had the effect of allowing firms to access insurance from insurers who wish to use low premiums to attract market share. The Sole Practitioners Group has regularly been asked for its opinion about unrated insurers providing competitive premiums. Up to now the group has relied firstly on the protection of the Financial Services Authority compensation scheme as a long-stop position to protect clients and, secondly, on the advice of the group's preferred broker, Prime Professions, now part of the Willis Group - who, incidentally, have not placed any of their insurance with the unrated insurers which recently caused problems in the market.

The SPG see this problem primarily as one of regulation for the financial regulatory authorities to monitor insurers generally, and who should have been able to prevent the difficulties which have arisen. The SRA obviously needs to monitor the protection of clients primarily and solicitors. But it should not have to expend the financial support it obtains from the profession in doing what would appear to be primarily the job of the financial regulation authority and the government.

Any insurer which is allowed to supply insurance services should be sufficiently regulated to a minimum standard by the financial regulator and the profession should be able to choose from any such insurer with confidence.

Very few sole practitioners will fall outside the parameters of the government's financial compensation scheme and practitioners should be aware that taking limited liability may take them outside of the scheme.

At this stage without more information the group cannot be satisfied that the recent insurance failures had an impact on clients, as opposed to the firms which chose to take them. The group wishes to avoid any reaction to the recent difficulties which is likely to have the effect of increasing the costs of practice, directly impacting on the often modest profits of the sole practitioners who largely provide a very straightforward user-friendly and cost-effective legal service to the public. The group will approach the consultation paper with those points in mind.

Clive Sutton is a sole practitioner and honorary secretary of the Sole Practitioner Group

www.spg.uk.com

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