SRA blasts LSB decision to extend consultation period on PII as “wrongâ€
LSB's main concern is reduction in minimum cover and says it is considering refusing the application in part
LSB's main concern is reduction in minimum cover and says it is considering refusing the application in part
The Legal Standards Board (LSB) has issued an extension notice on the Solicitors Regulation Authority's (SRA) application to reform professional indemnity insurance (PII).
The extension notice prolongs the initial decision period to Friday 10 October 2014, which means that whatever decision is made will not be incorporated until at least the next PII renewal season in 2015.
The LSB said in an open letter to chief executive of the SRA Paul Philip, pictured, that reducing the minimum level of PII from £2m to £500,000 could be argued as prejudicial to the regulatory objective of protecting and promoting the interests of consumers.
The LSB also commented that although the data collected on the proposals was "the best available", without a specific survey and/or modelling exercise, "it may not be sufficiently recent to be a reliable basis for the development of forward looking policy."
The LSB also criticised the SRA's consultation and application, which the LSB says presented potential cost savings as a key driver for the change, despite there being "limited evidence that this will be achieved." The super-regulator added: "The impact on the price of top-up cover does not seem to have been explored in any detail and the time that may be required for the market to adjust to the new regulatory requirements has also not been explored sufficiently."
Its last listed concern was that the potential impact on the Compensation Fund had not been fully explored and consulted on.
Chair of the SRA Board, Charles Plant, said that the regulator was disappointed that the LSB had issued the warning. Plant said that in principle it was the "wrong decision."
"We remain convinced of the case for changing arrangements for professional indemnity insurance, in order to deliver benefits for solicitors and consumers alike," he said.
Plant added that the SRA will continue to develop the proposals.
At the same time, the LSB has also issued a warning notice to the Law Society stating that it is considering refusing the SRA's application in part. The warning notice expires on 17 August 2015. In its letter to the Law Society, the LSB cited the reduction in minimum cover as its main concern.
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Frank Maher is partner at Legal Risk "This is good news for the profession as well as clients. There was a real risk that firms would end up paying more for the same or less, and there would have been some who would suffer real hardship as a result. "We are seeing far more large claims than in the past, and even small firms are finding that£3m is not enough, let alone £500,000. The change proposed by the SRA would have meant a reduction in protection for work already undertaken. It is not just a small firm issue - there have been enough cases of large firms closing and relying on run-off cover to demonstrate that. "But it is only a stay of execution for the moment, and a full review of the whole scheme is required. Over the past few years, 4,500 policies have been sold to solicitors by insurers who have become insolvent. Going forwards, we need to achieve a balance which avoids the need for firms whose record may not be impeccable, or whose finances are strained, being thrust into the arms of unrated insurers who may let them down in their hour of need when the claims come in. Other jurisdictions manage to achieve that balance, so it is not unattainable." |
'It is not just a small firm issue'