The Solicitors Regulation Authority's board today voted to cut to £500,000 the minimum level of professional indemnity insurance cover required from practitioners.
The decision was taken following a six-week consultation and came despite a last-minute plea from the Law Society to reverse plans to change the current £2m mandatory minimum.
Former Society president Linda Lee spoke at the board meeting to warn that the plans could create a ‘sub-class’ of firms that could not afford anything but the minimum cover and would be shunned by clients.
But the SRA board, which voted almost unanimously for the change, was persuaded by research that suggested premium costs could fall by at least 5% on average whilst not harming clients.
Paul Marsh, a former Law Society president who introduced the Conveyancing Quality Scheme, was the only board member to speak and vote against the proposal. 'I am not satisfied there is any reliable evidence this will reduce premiums,' he said.
'With the pressure a lot of sections of this profession are under, the fundamental problem is the risk they run in undertaking work which is disproportionate to the reward they see from doing the job. That is what is unsustainable and needs to be tackled.'
In a statement released after the meeting, the SRA said the new minimum level would require firms to ensure they had ‘appropriate cover’ rather than simply relying on meeting mandatory requirements. This would free firms undertaking low-value transactions from the need to obtain higher levels of cover than they and their clients need.
SRA chair Charles Plant said: ‘Our reform programme aims to make the SRA’s regulation more proportionate and better targeted, while maintaining critical protections for consumers.’
The changes are still subject to approval from the Legal Services Board but should still be made in time for the 11th version of the handbook, due to go live in October.
As well as the new £500,000 limit, the SRA board agreed to increase from £50 to £500 the amount that may be withdrawn from residual client balances and donated to charity without approval.
However, the board opted to defer a decision on changing financial reporting requirements. The SRA had proposed to remove the requirement for an independent accountant to report on a firm’s finances, but a decision will not be taken until September at the earliest.
The Gazette understands the Law Society will write to the LSB urging it to delay any immediate changes to mandatory minimum PII cover.
Speaking to board members, Lee said firms that try to gain cover beyond the £500,000 minimum may find it prohibitively expensive.
‘You will have a category of firms, who regardless of how good or bad they are, will be identified as a group that pose a threat and will be difficult to do business with,’ she said. ‘Introducing it this year will mean things are moving too fast and too soon.’
Elisabeth Davies, chair of the Legal Services Consumer Panel, described the decision as 'disappointing'. The watchdog was not convinced the changes would lead to lower prices, she said. 'In fact it might mean consumers will lose the current level of protection without gaining anything in return.'
The consultation received 142 responses in total, of which 90 were from law firms. The SRA said the majority of respondents were in favour of reducing the minimum cover. However admitting that 'some stakeholders disagreed with the proposals we made' it said 'we have taken this feedback on board'.