ABI demands tougher indemnity terms

Insurers must be given better access to solicitors’ disciplinary histories before granting them indemnity cover, the Association of British Insurers (ABI) said this week.

Outlining proposals for reform of the professional indemnity insurance (PII) market submitted to the Solicitors Regulation Authority, the ABI said insurers want improved access to SRA files and ‘more open and faster reporting of disciplinary proceedings.’

The ABI said insurers should be allowed to exclude solicitors’ claims for fraud and dishonesty from standard policy terms, meaning that solicitors would not be insured for the fraudulent actions of another partner unless they had taken out additional cover. It said insurers should also be able to exclude claims made by financial institutions.

The ABI proposed in addition that the assigned risks pool (ARP) be funded by a levy on the profession and that the single renewal date be scrapped.

The ABI’s director of general insurance and health, Nick Starling, said these were ‘not draconian changes’ and ‘simply reflect what happens in a normally functioning insurance market’. The standard PII policy terms do ‘nothing to incentivise proper behaviour’ among solicitors and mean that ‘insurers have their hands tied when it comes to taking action against fraudsters’, he said.

Starling added: ‘A thriving insurance market is competitive, flexible and innovative, with insurers working in partnership with their policyholders to help them manage risks to an acceptable level. This is not happening with solicitors’ professional indemnity insurance, which is why [this year’s] renewals are set to be extremely challenging for solicitors and insurers alike.

‘It does not have to be this way. We can avoid periodic crises and achieve long-term stability if we work together to reform this market. The case for reform is now, we believe, overwhelming. We know that some of the changes we want to see may not be easy to achieve or without disagreement.’

The ABI said that ‘if change does not happen, the long-term sustainability of the market will increasingly be at risk, with continued lack of competition and even more pressure on premium rates.’

It also called for ‘prompt action’ to close down firms that do not pay their ARP premiums. The ABI claims that the ARP, the insurer of last resort for firms that cannot obtain cover on the open market, has cost insurers more than £70m over its 10-year existence.

Law Society chief executive Desmond Hudson said Chancery Lane would reflect on the ABI’s proposals in forming its own response to the SRA’s review of client protection.

Hudson said the PII market must strike ‘a fair balance between risk and reward’ and generate ‘genuine competition’, with all sectors of the profession having access to the market.