The Solicitors Regulation Authority will not go ahead with a proposed ban on solicitors using unrated professional indemnity insurers, the regulator confirmed today.
The organisation consulted for two months earlier this year on imposing a minimum B-plus rating for insurers participating in the solicitors’ PII market.
The move was intended to provide clients with more certainty after high-profile collapses of unrated insurers. But opponents of the measure warned a ban would stifle competition, increase premiums and force smaller law firms out of business.
The decision not to go ahead with a minimum rating was announced as part of a wider announcement of reform of regulation in the legal services sector.
The SRA said it had ‘decided not to implement the proposed change at this time, but will keep this under review’.
A full response to the consultation is expected to be published later today.
But the SRA will be expected to answer how it intends to protect consumers in future from current arrangements which it has said ‘leave the market vulnerable to further large-scale entry by unrated insurers followed by rapid and unplanned exit with no guarantee that clients will be protected’.
The decision to drop the plans will come as a relief to the thousands of firms currently with unrated insurers, many of which were facing premium increases of up to 15% to cover the cost of their insurer securing a rating.
But the uncertainty may have helped to increase concerns about firms insured with unrated providers. One major building society having already decided to drop any such firms from its conveyancing panel.
The regulator has opened four separate consultations as part of paper entitled Approach to Regulation and its Reform which it states ‘provides the foundation for significant change in the way the SRA regulates’.
- Changes to enable increased entry of multi-disciplinary alternative business structures to the market;
- Reform to the arrangements for compulsory PII to look again at the minimum requirements for firms;
- Changes to compensation arrangements;
- Amending the requirements for accountants’ reports on client accounts to reduce the cost of current arrangements.
The SRA has said it intends to bring forward a package of measures to reduce regulatory burdens on small firms and to increase the level of support from the authority. It will be talking with solicitors, firms and representative bodies on the contents of this package and intends to publish proposals in the summer.
The regulator is also considering changes to the separate business rule to provide greater freedom to all regulated firms about how they structure their businesses whilst maintaining appropriate levels of consumer protection.
It intends to publish a consultation paper in November and implement changes in April 2015.
Charles Plant, chair of the SRA's board, said: ‘We are determined to regulate in a way which maintains the core professional principles and which enables good, committed, lawyers and firms to meet the diverse legal needs of an increasing number of consumers.
‘We have set out the approach we will take in order to provide clarity for those we regulate, for the legal services market more widely, and for consumers.
‘I believe this programme will deliver a system that achieves our fundamental purpose of protecting consumers and supporting the proper administration of justice, and do so in a more proportionate and targeted way. In the process we will remove unnecessary regulatory barriers and burdens.’