500 firms to enter assigned risks pool at indemnity deadline
A record 500 firms are set to fall into the assigned risks pool (ARP) today, as the deadline expires for professional indemnity insurance (PII) renewal.
This means around one in 20 law firms will be forced to spend a quarter of their fee income on emergency PII premiums.
The ARP, the mutual insurer of last resort, provides emergency cover for firms unable to buy PII from commercial insurers. Premiums cost up to 27.5% of a firm’s turnover if they apply to enter the pool in time, or up to 47.5% if they do not. Firms in the ARP are also required to pay for inspection and monitoring by the Solicitors Regulation Authority.
Small firms, particularly in the conveyancing sector, are likely to comprise the bulk of the swollen pool, but the PII crisis looks set to claim a bigger victim. A large non-conveyancing firm within the top-150 firms was preparing to enter the ARP today, one reliable source suggested.
A number of firms have already chosen to shut down ahead of the 1 October renewal deadline to avoid paying the massively inflated premiums set by commercial insurers (see  Gazette, 17 September, 1). The crisis has also led many solicitors, insurance brokers and insurers to call for the single renewal date to be scrapped.
The Association of British Insurers (ABI) said that it and its member insurers have been warning the Law Society and the SRA about a crisis ‘for some time’. A spokesman said that while the ABI hoped that those responsible ‘will approach reform to the market very seriously indeed… the signs, thus far, are not promising’.
Chancery Lane announced last week that it had written to the ABI and insurers asking them for an ‘urgent response’ to its concerns over ‘hugely inflated’ premiums.
If they meet ARP application criteria, firms with a turnover of up to £500,000 pay a premium of 27.5% of fees. After more than 24 months in the ARP over any five-year period, firms are closed down.