Regulator is bewitched by insurance mirage

18 Comments

Before stepping out into the unknown, perhaps the SRA should check the forecast.

When Captain Lawrence Oates stepped out of his tent and muttered the immortal line ‘I am just going outside and may be some time’, did anybody think to stop him?

Surely someone could have told him it was looking a bit nippy and he was best to sit it out for now? Yet they simply stood aside and let poor Oates make his fatal move.

How does this relate to the world of solicitors’ professional indemnity insurance I hear you ask? In all honesty, very loosely, aside from some pithy observations about equally bleak landscapes and an icy chill in the air.

But stay with me dear readers, I promise you there’s a point to this.

The Solicitors Regulation Authority, in this laboured analogy, is Captain Oates. In preparing to reduce the minimum PII cover the regulator is standing at the exit ready to take the plunge into unchartered landscape pitted with uncertainty.

Except the SRA is being told to turn back on the advice of experts, yet continues to push on regardless. And while the regulator is bound to survive this expedition, the same cannot be said for the firms it regulates.

When the SRA first announced it was reducing minimum mandatory cover to £500,000, I liked the idea. For years I’ve heard complaints that the market is too inflexible and restricted.

But the proposed solution appears to have managed the impossible and united solicitors, insurers and lenders. All have queued up to warn of the unintended consequences and mirage-like benefits of the reduced cover.

What has struck me most is the insurers’ insistence that premiums will not come down as a result.

Lower-cost premiums is the bait that has the SRA hooked. It was the major point of discussion as the board approved the plan and it remains the key selling point now.

In its letter to the Legal Services Board, which is required to give ultimate approval, the SRA stressed there will be a ‘downward pressure on premiums’. These will have a knock-on effect on the price of legal services which will be passed on to consumers. As easy as that.

Which is all well and good, except that the people setting the price of insurance don’t agree.

The Association of British Insurers, whose members include most PII underwriters, says the SRA’s assumption is ‘misguided’. Insurers care only about risk and firms with a poor claims track record won’t suddenly become more likely to be offered discount premiums.

Even if some firms can negotiate a saving, the ABI says they’ll have to fork out to cover the compensation fund costs that will rise when more firms collapse.

The SRA is promising something it has no say over, while ignoring the warnings of those holding the purse strings.

Perhaps if someone had told Oates the weather was on the turn, he might have changed his mind. The SRA is receiving plenty of warning signals, but seems determined to step out into the unknown.