A leading market expert has estimated that up to 175 firms closed their doors ahead of this month’s professional indemnity insurance (PII) renewal deadline rather than face the high cost of premiums, while a handful of firms are believed to be trading illegally because they cannot afford cover.

Under the indemnity rules, firms had to obtain basic PII cover on the open market before 1 October, or apply to enter the assigned risks pool (ARP) before the deadline. However, experts told the Gazette that some firms have failed to make an ARP application or inform the Solicitors Regulation Authority of their plight and have continued to trade without cover. They will be liable for penalty premiums should they make a late application to the ARP.

Conveyancing and general practice high street firms are thought to have made up the bulk of predicted closures, experts said, as they faced particularly high premiums.

The SRA said last week that 37 ARP firms have closed and 10 are in the process of closing as a result of the enforcement action it began in August. More than 400 firms applied to enter the ARP this year, but this number was lower than expected.

Frank Maher, partner at Liverpool firm Legal Risk, said: ‘Some will draw comfort from the relatively low number in the ARP, but I think they are wrong to do so, both because of the number of firms put out of business and the fact that there should never be anything like that number in the ARP in the first place.’

Maher suggested that many firms unable to obtain affordable quotes closed down in anticipation of not getting cover at all, either because run-off premiums offered by Quinn this year were ‘relatively affordable’, or because run-off premiums in future years would probably be far more expensive than this year.

He said that his firm has been ‘very busy’ advising firms on closure issues over the past two months, and estimated that 150 to 175 firms have chosen to close because of high premiums.

Simon Lovat, divisional director in the UK division of United Insurance Brokers, said he was aware that a ‘handful’ of firms are uninsured and have not informed the SRA, and ‘don’t know what to do as they can’t afford the premiums they have been offered’.

Brian Balkin, executive director at insurance broker Lockton, said that some firms trading without PII might have hoped to secure cover in the week after the 1 October deadline, but should have applied to the ARP.