Society in new deal on ARP finance

The Law Society has offered to share equally with insurers up to £60m in liability to cover the cost of the assigned risks pool (ARP).

The Society is currently in negotiations with the Solicitors Regulation Authority to fulfil the profession’s commitment to funding the 2012 ARP. The Society had initially proposed to pay for the first £10m of cover in a trenched system, taking it in turn with insurers to cover the next £10m, up to a limit of £50m. But with fewer firms entering this year’s ARP, and the cost likely to be much lower than the £30m average, it was feared the Law Society would end up bearing a disproportionate ­burden.

Any additional liability costs above £60m would be met by the insurance industry.

The SRA will decide the funding arrangements in time for insurers to open their professional indemnity books in late spring, with most major firms expected to agree to the new deal.

Meanwhile, details are being discussed for the Extended Indemnity Period that will replace the ARP from 2013. Insurers are likely to be required to provide additional cover for three months for firms they have refused to ­reinsure. Regulators now have to decide which activities law firms will be allowed to conduct during that period.

The new system is expected to see more insurance firms attracted to the market, encouraged by not having to pay for an ARP cost burden that is only determined after books have closed.