Regulator tries again to slash solicitor PII limits

Professional indemnity insurance (PII) limits for UK solicitors could be slashed from a minimum of £2m per claim to £500,000, as proposed in a consultation paper by the Solicitors Regulation Authority (SRA). Single-claim limits for conveyancing – the main source of claims against solicitors – will be set at the higher limit of £1m. Based on analysis of claims during the ten years to 2014 – since its first attempt to reduce the cap was rejected by the Legal Services Board – the regulator says 98% of claims are settled for less than £500,000 and the existing PII requirement is set too high. In addition, half of all claims were driven by conveyancing complaints with an average settled claim value of £69,600. Commercial claims account for 15% of the total, with a higher average claim payment of £261,900, but under the new proposals, the SRA says compulsory PII insurance would not automatically include commercial cover. The SRA says the cost of claims has reduced since the 2008 economic crisis, but it adds that insurers are all too aware of where future claims could hit their pockets. “Insurers are now increasingly aware of cyber-related claims and the risk of more severe losses from commercial work. They are considering more closely the type and size of practice they are willing to insure, as well as needing more evidence of strong risk management procedures and IT systems before providing firms with insurance,” the consultation paper states. The SRA says the current one-size-fits-all rules for PII need reform, with many smaller and specialist firms paying high premiums for PII that covers all possible legal activities. In 2016/2017, solicitor firms of all sizes paid an average of £26,853 for PII cover, but smaller firms paid £32,470 and PII costs accounted for 6% of turnover for sole practitioners. The SRA was unsuccessful in its proposals first set out in 2014 to lower the PII limit, but argues that new evidence supports the new proposal. The regulator argued that freeing up the rules would provide solicitors with more tailored insurance cover and reduce premiums accordingly. The SRA says the lower costs of conducting business would make it easier for new players to set up shop and make legal services more affordable to clients. At the same time, the high premium costs for solicitors in run-off have made it difficult for firms to afford to close. Under the proposals, closed firms will need to continue PII cover for six years but the cover will be capped at £3m for firms that have carried out conveyancing work, and £1.5m for other firms. The SRA also proposs changes to its compensation fund, which it says has been threatened by high-value claims, in particular from solicitors caught up in clients’ “dubious investment schemes”. Under the proposals, claim limits will be reduced to £500,000 and eligibility criteria will be in place to limit access to the compensation fund to those that meet a hardship test. Wealthy individuals, where net household income exceeds £250,000, and large charities will be excluded from accessing the fund. Paul Philip, chief executive of the SRA, comments: “Our current one-size-fits-all arrangements are too rigid. Our proposals will help firms – particularly small ones – make sure they are not paying more than they need to protect themselves and their clients. We recognise this is a complex area, with no easy solutions.” The consultation is open until 15 June 2018.

Regulator tries again to slash solicitor PII limits

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