The body representing City solicitors has published a stinging condemnation of plans to reduce law firms’ minimum professional indemnity cover.
The City of London Law Society (CLLS) said SRA proposals to cut the required minimum from £2m to £500,000 (or to £1m for firms doing conveyancing) could end up harming firms, partners and the clients who are intended to benefit.
The SRA is consulting on how to best protect the users of legal services after failing to push through similar measures in 2014. It says more than half of firms take out more than the minimum cover presently required and that 98% of PII claims against law firms are valued at less than £500,000.
But the CLLS argues those figures may be skewed by the SRA not taking into account sufficient historic data, and ignoring insurers who have exited the market in recent years and who faced large losses.
The response notes that with insurers taking on greater risk, there is the chance that premiums will increase. Meanwhile, partners in firms that fail – such as those at the defunct European arm of KWM – will be exposed to a greater degree to liability above insured levels, including after retirement.
The response, signed off by Jonathan Kembery, the CLLS chairman of its regulation committee, adds: ‘There is simplicity in the current PII market. The SRA’s proposals, even if individually attractive (which is not our view) risk upsetting those arrangements to the detriment of CLLS member firms and their partners.’
While the changes would have no effect on most firms entering the City market, the CLLS warns that for smaller firms the potential savings in their insurance costs could ‘illusory’.
The group says further efforts should be made to raise clients’ awareness of the risks of cyber crime and how to limit them, and any proposal to weaken protection under minimum terms and conditions should be resisted.
The SRA, which closed its consultation last week, has said a balance needs to be achieved between the right level of insurance cover and ensuring legal services are affordable.
The regulator said: ‘Many people struggle to afford legal services, with only one in 10 making use of [a lawyer] when they experience a legal problem. When so many people are struggling to access solicitors’ expertise, we need to be confident that the protection is set at the right level.
‘The lower costs of insurance should, if the market is working well, ultimately flow though to lower prices for the users of legal services.’