SRA grants temporary SIF extension
The Solicitors Regulation Authority (SRA) has announced it will extend the Solicitors Indemnity Fund (SIF) for a year to allow further consultation on the future of post six-year run-off cover.
The extension is subject to an affordability test; if met, SIF will continue to provide post six-year run-off cover for claims against firms which have closed without a successor practice until September 2022.
Earlier this year, the SRA announced its intention to close the fund in September 2021 – an announcement met with widespread concern by the profession.
Post six-year run-off cover supplements the mandatory six-year run-off cover firms must maintain. SIF provided indemnity cover until 2000, when open market insurance took its place. In 2006, it was decided SIF would provide the post six-year run-off cover until 30 September 2017, later further extended to September 2021.
The SRA said this was “explicitly to allow affected firms, solicitors and insurers to consider… development of products that can offer… cover for those who want [the] additional insurance”.
The SRA has said it was only as the deadline for SIF closure loomed, that engagement with potential issues increased, which the SRA appears to suggest is ‘too little, too late’.
Commenting on discussions held at the SRA’s board meeting on 8 June, SRA chair, Anna Bradley, said: “… it is disappointing… this [interest] came so late in the day and as a result is set against the backdrop of significant concerns about the future viability of SIF”.
The SRA said there has previously been a “shared recognition that the future viability of the fund to provide post six-year run-off cover was coming to an end”.
It said: “Consideration was being given to the purchase of a master insurance product to manage any remaining liabilities in a cost-effective way (and it is hoped this work will continue), and the use of residual funds”.
However, Bradley acknowledged “the external environment has changed significantly in recent years” – in particular, the insurance market has hardened.
She said: “There is now limited time available to look at what are complex matters around whether there is, in principle, a regulatory place for post six-year run-off cover. We will need to give careful consideration to finding the right regulatory balance between consumer protection and issues of proportionality, affordability and the wider public interest”.
The SRA says the extension will allow it to “do the work necessary to agree a long-term position”. It will review comparable run-off cover arrangements, analyse claim patterns, conduct regulatory and equality impact assessments, assess the affordability of the SIF in the longer term and consider viability of other options as they emerge.
It also said consideration of options for winding up the SIF must continue. It said, economically, the fund is now deemed beyond the time a conventional insurance company would have taken steps to close its operations.
The Law Society welcomed the extension. Society president, I. Stephanie Boyce, said: “We are pleased the SRA has heard the many reservations… about the closure of the SIF and has now removed the risk of imminent SIF closure… when no viable alternative is available”.
She contended the Law Society had been raising its concerns about SIF closure with the SRA for three years.
Boyce expressed concern the SRA may be seeking to ‘buy time’ for the insurance market to shift: “… it is not enough simply to delay closure again in the hope that next year the commercial indemnity insurance market will change and fill the gap in consumer protection that SIF closure will create. The SRA must move quickly to publish its consultation on future options and put a plan in place”.
Boyce encouraged the SRA to “show imagination” and “work hand in hand with the Law Society, the insurance industry and others to find a long-term solution”.
She highlighted the need for a solution that affords “proper levels of consumer protection and [does] not expose solicitors to ruinous claims or consumers to potentially lengthy and complex litigation”.
The SRA has said it will publicly consult on the next steps, including alternative indemnity and discretionary uses for any SIF residual surplus. It said the consultation process will also provide the opportunity to ensure all stakeholders understand the issues around affordability of SIF, as it believes, based on recent correspondence, there are “misunderstandings about these matters”.