Solicitors should not be forced to renew their professional indemnity insurance (PII) on a single date, and the entire conveyancing process should be investigated, a ‘root and branch’ review of client financial protection has told the Solicitors Regulation Authority.

An independent study commissioned by the SRA and conducted by consultants Charles River Associates (CRA), published last week, recommended that the regulator should determine whether more stringent regulation of conveyancing is required, owing to ‘evidence of market and regulatory failures’ and the fact that conveyancing accounts for 50% of PII claims.

CRA recommended that solicitors should continue to obtain PII on the open market, in part because the system has saved the profession £2.1bn since the Solicitors Indemnity Fund was scrapped in 2000/01.

It said the assigned risks pool, the insurer of last resort for firms that cannot obtain cover on the open market, should be funded through a general levy on premiums.

ARP firms should be closed immediately if they do not pay their premiums, and firms should be assigned an ARP premium on an individual basis, the report found.

The SRA is considering CRA’s recommendations with a view to consulting on a set of proposals for reform in December. Changes could be effected for the 2011/12 renewal period.

The regulator commissioned the report in July to consider the different structural models that could be used to deliver PII, and the composition of insurers’ minimum terms and conditions.

‘None of the market failures identified… are solved through the use of a single renewal date,’ the report says. ‘This alone indicates that there is no reason to restrict the market in this way.’

Scrapping the single renewal date would reduce the cost of insurance for all, and would ‘significantly’ reduce the number of firms falling into the ARP, CRA suggested.

The report recommended that the minimum PII terms and conditions should apply only to individual clients, and not corporates. CRA said this would reduce premiums for non-conveyancing firms; increase the number of firms able to obtain cover in the open market; reduce the number of firms that ‘dabble’ in conveyancing; reduce the number of firms on lender panels; and reduce the value of claims paid through the ARP.

Law Society chief executive Desmond Hudson said there must be a detailed examination of the effect on clients and the profession of removing mandatory cover requirements for commercial clients, or transferring the burden of ARP costs to the profession through direct levy. However, he welcomed the proposed abolition of the single renewal date, and called for ‘urgent confirmation’ from the SRA that this will be adopted.