Proposal to cut minimum PII cover rejected

The LSB has refused an application from the SRA proposing a reduction in the minimum level of professional indemnity insurance (PII) cover.

The SRA had proposed limiting cover from the current level of £2m for firms, or £3m for incorporated firms and LLPs, to just £500,000. The regulator claimed this would help smaller firms and create more flexibility in the market.

LSB chief executive, Chris Kenny, said: "We welcome the SRA's decision to comprehensively review financial protection arrangements and expect that it will reflect the outcome of this application in its further work.

"What matters is that firms have the right incentives to assess their risks accurately and so ensure that consumers are protected. It is not clear to the Board that a minimum level of cover necessarily has a place in achieving that and we were certainly not persuaded by the evidence put forward for the figures proposed."

In September, SRA chief executive, Paul Philip, called the current level of cover "arbitrary" and that there "is no convincing evidence that it is appropriate".

The SRA's proposals had been criticised by across the board, including the Law Society, Legal Services Consumer Panel, mortgage lenders and practitioners.

Frank Maher, partner at Legal Risk, wrote to the LSB in July arguing that the SRA's application should be rejected because the current arrangements require further review.

Meanwhile, SJ reported earlier this year that the consultation on PII had been described by industry experts as "flawed, rushed and dangerous".

Today, the Law Society welcomed the LSB's decision. President Andrew Caplen, commented: "The Legal Services Board's decision to refuse the reduction of cover to £500,000 is good news for consumers and firms. If implemented, the changes would almost certainly have increased risks to consumers and costs for firms.

"That amount of cover would be insufficient for the vast majority of firms and would be unlikely to result in any significant lowering of premiums. Firms would therefore need to purchase top-up cover, which would be likely to cost more than buying the comprehensive package under the current minimum terms and conditions and could contain small print exclusions."

The LSB did, however, approve parts of the SRA application relating to the introduction of a new outcome in the SRA's Code of Conduct 2011.

The changes will require firms to assess and purchase an appropriate level of professional indemnity insurance and further technical amendments to the SRA's regulatory arrangements including amendments to the SRA Glossary.

John van der Luit-Drummond is legal reporter for Solicitors Journal