'Inconsistencies' force SRA into recommending minimum rating for indemnity insurers

Insurers providing professional indemnity cover should have a minimum B rating, according to SRA proposals to be unveiled at tomorrow's board meeting.

The proposal comes after the collapse of a number of unrated insurers in the past few years - Gibraltar-based Lemma in 2012 and Riga-headquartered Balva last year - which have prompted the SRA to review its policy.

"We have always resisted calls to insist that insurers have a rating for a number of very valid reasons," said policy and strategy director Agnieszka Scott. "The most valid of these was always the fact that we understood the protections offered to clients were the same, regardless of who their solicitors were insured with."

Research by broker Marsh however has suggested there were "inconsistencies in protections for clients depending on the status of the insurer," the SRA said.

As a result, the regulator said it would propose that all participating insurers should have a financial strength rating of at least B from a recognised rating agency.

The formal proposal follows indications first reported in Solicitors Journal on 27 June 2013 that the SRA, in a radical policy change, would look into introducing a financial rating criterion.

Two weeks earlier Latvian insurer Balva had entered into liquidation, just months after being banned from writing any new business among concerns over its ability to meet potential claims.

Balva was the third largest indemnity insurer in 2012, with 1,300 firms on its books.

The Law Society had separately been campaigning for minimum rating for indemnity insurers, launching its own scheme, Chancery Pii, as a joint venture with Miller Insurance Services.

The rating would be in addition to the requirement to be authorised by the Prudential Regulation Authority, the new licensing arm of the Bank of England, or the equivalent in their home country for insurers established in an EEA country and passported into the UK.