Still without indemnity insurance?
Until last week up to 470 firms were rumoured to have been without indemnity insurance in place. That number was more than three times the SRA’s own.
It perfectly fitted the climate of fear and uncertainty surrounding the final days of the first indemnity renewal cycle following the demise of the assigned risks pool (ARP).
Against a backdrop of rising concerns over financial stability across the sector, it also added to the feeling of an old world on the verge of collapse.
The discrepancy was based on the fact that figures were coming from different sources.
The regulator’s was based on active notifications by firms without insurance. The other was an estimate circulated by various sources close to indemnity insurers whose data apparently told a more alarming story.
Preparing for the worst, the SRA made a final call last week, reminding firms to notify their insurance position.
Having carried out cross-checks, the SRA admitted that the number was greater than the 141 it had on its books.
As the week closed, however, the numbers began to converge. And as Solicitors Journal sends the last issue for 2013 to press, we understand that there are now more than 100 but fewer than 141 firms without insurance.
That’s still not insignificant, particularly if you consider that there may be some larger firms in that bucket – the kind who, unlike Manches, haven’t managed to get bought out before the end of the year, or like Challinors, have not found buyers for individual departments.
For most of these zombie firms, the taxman’s knock on the door at the end of the year, with demands for corporation tax and VAT, will be the final nail in the coffin.
For the SRA, it is critical that these firms proceed to an orderly wind down. The cost on the regulator could otherwise be catastrophic.
But what can the SRA do to force the delinquents to report themselves? If they haven’t bothered to raise stability concerns before, the threat that failure to notify is a breach of insurance rules and that enforcement action will be taken is not going to be a compelling argument.
In many ways, the current problems with insurance renewal should be the least of our worries. If the latest estimates are correct, they are comparable with the number of firms that fell into the ARP in previous years.
The serious problems are yet to come. Firms that have scraped through this time are likely to continue struggling next year. So unless they start to take financial management seriously, 2014 won’t be pleasant.
On the other hand, what doesn’t kill you will make you stronger – let this be our season’s greetings to you and everyone at your firm.
Legal News desk contact: editorial@solicitorsjournal.com