High street firms are being forced to close because they cannot afford to pay vastly increased professional indemnity insurance (PII) premiums, while hundreds more are destined to end up in the assigned risks pool (ARP), the Gazette has learned.

At the renewal deadline on Tuesday this week, industry sources said a number of small firms – the majority involved in conveyancing – had chosen to shut down, complaining they were unable to find cover in the conventional PII market while the cost of the ARP would wipe out dwindling profits. The ARP provides PII for firms unable to find cover with conventional insurers, but charges huge premiums.

Industry professionals believed that up to 500 firms would fall into the ARP, while PII brokers estimated that the average premium for small firms had soared by up to 40%.

One broker reported a 60% premium hike for a top-35 firm but said, as did other brokers, that big firms had been largely insulated from the crisis.

Frank Maher, partner at Liverpool firm Legal Risk, said: ‘It’s carnage on the high street.’ He knew of a ‘handful’ of firms that had been forced to close and this was likely to be reflected elsewhere.

Nick Pointon, company director at broker PYV, urged the Solicitors Regulation Authority to allow staggered renewals over the year rather than have a single deadline day.

Tony Blyfield, chief executive of PII broker Prime Professions, said: ‘The worrying thing is that some insurers have no-quoted very late, or put out big prices that are aimed at not getting the order. This has left some clients scrabbling around to get a quote.’

Maher estimated the worst-case scenario would see 500 firms enter the ARP, while Simon Lovat, divisional director in the UK professional indemnity division at United Insurance Brokers, put the figure at 400. Pointon predicted ‘200-plus’ would end up in the pool. However, Lovat estimated that around half these firms would be able to find conventional cover within weeks.

Blyfield said that premiums had increased by up to 40% for one- to four-partner firms, while Lovat and Pointon estimated an increase of 25% for firms with up to 10 partners.