Indemnity: good firms to pay for bad

The assigned risks pool (ARP) for law firms unable to find insurance is set to grow this year, and the market could return to the days of the many subsidising the few, a top insurer warned this week.

David Coughlan, head of solicitors' indemnity at Zurich Professional, said the hardening market and higher premiums firms are facing as the renewal process begins would drive more into the ARP.

He also argued that the minimum terms of the Law Society's indemnity insurance policy are too wide - far wider than other professionals enjoy - and that this will almost certainly have a negative impact on all firms' ability to obtain competitively priced insurance.

Solicitors who comply with the rules 'will end up footing the bill in a situation not far different from that which existed during the Solicitors Indemnity Fund...

If the risks pool numbers continue to grow and the premiums are not collected, this could become a real issue for those solicitors who toe the line.'

The ARP provides cover at punitive rates for two years; however there is a growing problem of them not paying the premiums.

There are now around 45 firms in the ARP and around half of the 2.7 million in premiums charged for this year and last are as yet unpaid.

The Law Society's indemnity insurance committee is currently deciding how to deal with the problem from a regulatory and disciplinary point of view.

Meanwhile, firms are having to come to terms with rising premiums.

A spokesman for the largest insurer, the St Paul, said: 'Rates will rise generally, but not quite as dramatically as some are suggesting.

Where insurers have under-quoted for the last two years, these rises may appear more dramatic.'

Paul Nicholas, head of City firm Reynolds Porter Chamberlain's professional liability group, said the rises reflected contraction in the solicitors' indemnity and reinsurance markets, the Enron scandal, and fears that an overheating property market could leave insurers exposed to claims from lenders.

Peter Farthing, chairman of the Law Society committee, said: 'We expect that premiums will rise somewhat this year, in line with a general increase in all insurance premiums following the 11 September attacks.

We do not believe that improvements to the minimum terms will have any material effect on premium levels.'