Solicitors May Need to Alter Professional Indemnity Insurance
It has been revealed that proposals to significantly alter the way in which insurance is provided to solicitors could affect professional indemnity insurance cover. There are a number of challenges currently affecting the legal profession, and with the recession causing widespread problems for many companies, expenses are already stretched. And now, as professional negligence claims remain on the increase, the system of providing cover in the form of professional indemnity insurance could change dramatically.
Professional negligence claims against solicitors have rocketed in the past few years, with 2008's 80 claims soaring to 210 in 2009. The figures have continued to rise, particularly by banks and financial institutions who have tried to recoup some of the money lost by borrowers defaulting on mortgage payments. All solicitors in Wales and England are required by law to hold professional indemnity insurance as a means to protect the finances of their clients. But with the Solicitors Regulation Authority (SRA) carrying out a review of the current cover market, a variety of proposals could be set to rock the industry.
Opening a paper in December for consultation, one of the SRA's main proposals is to exclude financial protection for claims from financial institutions and lenders. This will have dramatic consequences upon solicitor firms who deal solely with lenders. With insurers only allowing certain companies to purchase back their professional indemnity insurance cover, some solicitors could be set to lose all of their business activity from financial institutions. Likely to mostly affect conveyancing firms who cannot show a strong record of risk management, such proposals by the SRA are set to cause significant change.
An independent report of claim statistics was carried out by Charles Rivers Associates (CRA) last year, who discovered that half of the total claims in terms of value were those from conveyancing matters. With the CRA revealing that between 30 and 60 per cent of English and Welsh firms would be seeking to buy back cover, and taking into account that 64 per cent of solicitors currently undertake residential conveyancing work, the change could mean that 50 per cent of firms will find themselves without professional indemnity insurance and have to stop their activity in the conveyancing sector.
The ramifications of such a move to reduce the amount of professional indemnity insurance available for solicitors working alongside financial institutions are also likely to result in higher costs for the consumers, with expenses having to include fees for buying back cover. It may also force many firms to change their regulator to the Council of Licensed Conveyances (CLC) who do not currently have the restrictions in place regarding professional indemnity cover and lenders. Meanwhile, for solicitors whose work covers a range of markets, conveyancing departments may become separated from the rest of the firm in a bid to ensure that cover will still be available to firms. Either way, the significant changes coming to professional indemnity insurance is likely to have a profound effect on the way in which solicitors can work.
About the Author:
Dan Holloway is a business journalist specialising in the UK insurance market. He works for RK Insurance, which advises businesses on Public Liability Insurance and Professional Indemnity Insurance matters.
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