Unrated insurers 'will be able to get B rating'

"Most of the significant unrated insurers" would be able to upgrade to a B rating if the regulator changed its rules, Crispin Passmore, the SRA's new executive director for policy, has said.

The former Legal Services Board strategy director was responding to comments at yesterday's SRA board meeting considering the regulator's proposed ban on unrated insurers.

In a consultation to be launched in the next two weeks, the SRA will suggest making it compulsory for solicitors to use insurers with some form of B rating from agencies such as Moody's and Fitch.

Passmore (pictured) said firms like Quinn had shown that unrated entrants into the indemnity insurance market could capture a large market share and, if they become insolvent, force consumers to rely on the financial services compensation scheme.

He said the regulator could have insisted that solicitors insure with an A-rated insurer, but this would increase the cost.

Martin Coleman, board member and head of anti-trust and competition at Norton Rose, said the new rule was "an additional regulatory obligation we are imposing on the profession".

Coleman went on: "It's not clear to me from the paper what the risk of detriment to the client is. There's nothing to indicate the number of clients who have not been compensated as a result of the failure of an insurer. I would like an answer to that question."

Coleman added that there was talk of an increase of five per cent in premiums if the SRA went ahead with the move, but some rated insurers had 15 per cent higher premiums.

Passmore replied that it was "very difficult to put a number" on the level of detriment consumers had suffered, but the regulator had to look forward.

He said that there would still be a "two-price market" if unrated insurers were kept out, but admitted that there would be an increase in premiums.

Coleman suggested that the consultation make clear that the cost of indemnity insurance following the rule change could not be predicted following the rule change, and that the cost "may come down or go up by more than five per cent".

The suggestion was accepted by the Board, and Passmore said the consultation paper would be issued within the next couple of weeks.