Could ARP proposals improve PI market for solicitors? Professional Indemnity Insurance

23/11/2009

Written by Marc Riches

With 2009 proving to be particularly stressful with regards to renewing Professional Indemnity (PI) insurance for solicitors, a key figure has proposed a number of changes to the system.

Peter Williamson, chair of the Solicitors Regulation Authority (SRA), acknowledges that the 2009 renewal period has been "by far the most difficult" for several years, as the number of law firms unable to source PI cover by the October 1st deadline has risen dramatically.

And while such legal professionals are placed in the assigned risks pool (ARP) following this cut-off point in order to provide them with temporary cover to stay in business, Mr Williamson has expressed - in an article for the Law Society Gazette - concern about the increasing number of solicitors that are making use of the system.

Indeed, the number of law firms has risen from 26 in 2007-08 to 166 some 12 months later. This year it is thought that over 300 legal practices will be in the ARP.

In particular, it was suggested that the cost of the ARP - which in turn requires increased premiums - could be a worry. Claiming they are "falling on the profession at a difficult time", the SRA chair indicates that insurance providers may pass on rising expenses to their customers, something that could cause increased PI insurance premiums for solicitors.

The SRA official states that although the PI insurance process works well in offering "a high degree of protection to the public and the profession at a comparatively low cost" - the current ARP model is placing the system under significant strain.

He points towards concerns by PI insurance providers about high default rates in the ARP – with insurers often only being able to collect less than a third of the premiums due to them over the course of an indemnity period - and the perceived "lack of control over exposure" that comes with the ARP.

And although of the opinion that the pool "is worthwhile because it throws a lifeline to firms that then are able to survive", he suggests that the process is in need of change.

Indeed, proposals by the authority include that from October 1st 2010, law firms will no longer be able to enter the ARP in order to reduce the pressure that being placed into it presents.

However, those firms that are already in the pool at this cut-off point will be able to stay in it until they are no longer eligible.

Other plans from the SRA to alleviative the pressure legal practices are under would be to reduce the maximum time that they can be in the ARP from two years to one, while another proposal could see all new firms automatically ineligible for the ARP policy.

In addition, Mr Williamson indicates that there is a "strong case for making mergers and acquisitions more attractive" in order to help struggling law firms.

With such plans now published for consultation, interested parties have until February 18th to make their feelings on the subject felt.

The proposals could be of particular interest to smaller firms, as he points out practices consisting of just one or two partners make up the majority of ARP occupants, as their premiums can account for as much as 27.5 per cent of their gross fees - "an enormous financial burden".

Overall, Mr Williamson states that any changes affecting ARP must ensure that the protection currently offered to clients is maintained, if not improved. Furthermore, prospective adjustments should keep the costs incurred to insurers and the legal profession as low as possible as it is their clients who ultimately bear the brunt of such expense.

Those searching for PI insurance could be interested in a letter from Tamsin Morris recently published in the Law Society Gazette. In it, the solicitor suggests that moves by the Law Society to create a peer-to-peer support group with a web forum could help those placed in the ARP, something her practice has once endured and an experience she claims was "indescribably horrible".

Director of PYV Legal Marc Riches said: "Whatever the future holds for the ARP, solicitors concerned about the risk of having to be placed or ending up in the ARP next year will be well advised to start the process of seeking out PI insurance from Qualifying Insurers well in advance of October 1st 2010. We will certainly be doing all we can to help in what looks like being a difficult market next year."

Click here for more information about Professional Indemnity for solicitors.

Click here for more information about Professional Indemnity in general.

PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

(c) 2009 Adfero Ltd.

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