PII focus | BAME firms: walking the tight rope

Last week stuntman Nik Wallenda was the first man in history to cross over the Niagara Falls on a tightrope. Yet even he had a safety harness to prevent him from dropping into the gushing waters. The ABC TV company refused to film the stunt unless he had the harness in place.

The act of obtaining professional indemnity insurance for a firm is nearly as hair raising a spectacle. During the four-month renewal window practitioners around the country are in danger of losing their sanity as they fill in a 60-page proposal forms and wait to learn whether insurers will grant their firms a 12-month lifeline.

Insurance companies, more so than the SRA, hold the life and death of a firm in the palm of their hands. They offer the safety harness and the SRA represents the TV company that will not allow a firm to practise without that harness.

In previous years the assigned risks pool (ARP) has been the emergency safety ?harness for firms that could not obtain professional indemnity insurance on the open market. A firm that could not obtain professional indemnity insurance could, up until a few years ago, stay in the ARP for up to two years. The premiums were exorbitant – 25 per cent of the firm’s annual turnover – but the ARP gave the firm the opportunity to adapt, survive and jump back into the open market. Yet that safety harness is being withdrawn and will be pulled away completely in 2013. For 2012-13 a firm can only remain within the pool for a period of six months.

This is a matter of particular concern to black and Asian minority law firms (BAME) which, according to SRA research, are disproportionately represented in the ARP.

The SRA, in the equality impact assessment of its proposal to scrap the ARP, ?indicated that BAME firms accounted for 28 per cent of ARP practices despite comprising only 11 per cent of firms overall. The same research indicated that 29 per cent of BAME firms were closed while in the ARP compared to 40 per cent of white firms. So, the ARP offered a survival route to more BAME firms then white firms. Therefore the phasing out of the ARP is likely to disproportionately affect BAME firms and will mean that a number of them, that could have survived if the ARP had been in place, will not now do so.