Insurers, mortgage lenders and solicitors have pleaded with the oversight legal regulator not to go ahead with a reduction in minimum indemnity cover.
The Legal Services Board has published correspondence from a number of interested parties opposing the Solicitors Regulation Authority’s plan to reduce minimum PII cover to £500,000.
The SRA opted last month on the change in a bid to inject more flexibility into the market, reduce the burden on firms and bring down premiums. The decision to proceed now lies with the LSB.
The Law Society and Legal Services Consumer Panel have already gone public in their opposition to the plan, but the scale of resistance – from a range of sectors – has only now become clear.
Various groups, including 26 law firms, the Association of British Insurers, Nationwide Building Society and Zurich Insurance, have all voiced their concerns at the proposal.
The solicitor firms, who are grouped together in one document, all say the time span to response to the SRA consultation was too short, savings in PII premiums will be minimal and many lenders will not want firms on their conveyancing panels with £500,000 cover.
They are quoted as saying: ‘As a firm that carries out conveyancing, we are very concerned that the suggested reduction in cover will impact negatively on us, thousands of firms like ours and the general public.’
Zurich’s response says the SRA’s stance appears to be based on the ‘false and misguided premise that such a change will lead to a meaningful reduction in premiums’.
The insurer says the ‘reality’ is the new minimum cover will reduce consumer protection, increase costs to the profession and increase the risk of insolvency when solicitors are faced with claims over and above their level of cover.
The ABI’s letter, dated last week, suggests premium reductions are likely to be ‘minimal’.
Even if some firms make a saving, they will have to bear the costs of increased payments from the compensation fund as other firms face a greater risk of insolvency, it said.
Nationwide, which has already said it will retain the present £2m minimum cover for its conveyancing panel firms, also asks the LSB not to approve the changes.
The lender warns it will need to ‘regularly review membership’ – with an accompanying administrative burden – with the likely knock-on effect being a ‘considerably more restricted panel’ moving work to a smaller number of firms.
This sentiment is backed by a letter from the Council of Mortgage Lenders, whose director general Paul Smee said he was ‘especially disappointed’ with the SRA decision.
He added: ‘The extremely short time frame for which to implement the rule changes compounds the likelihood that lenders are forced into taking fast and potentially drastic action to protect their current pipeline of work.’
In its response, the SRA says the changes are timely, based on the best available data and will benefit consumers.
Executive director Crispin Passmore said small firms can assess their risk and purchase additional layers of cover if necessary.
He added: ‘Requiring firms to have in place a level of cover which is appropriate, will mean that consumers will not have to pay for a level of cover which is not necessary, as some are doing currently, nor be underinsured because of an arbitrary limit without responsibility for higher cover where appropriate.’