SIF: risky revival

I write to correct a number of misapprehensions expressed in Michael Simmons' article, 'Death by Insurance' (see [2003] Gazette, 26 June, 14).

The contribution (excluding shortfall) paid by the profession to the Solicitors Indemnity Fund in 1998 - its penultimate year of operation - was 235.8 million.

In 2000, the first year of open market insurance, the total premiums were 147.4 million, paid to 29 of the 35 qualifying insurers.

Mr Simmons is wrong to say that in the second year capacity had reduced and that rates had soared, as in 2001, the profession paid premiums of 161 million to 25 of the 28 insurers.

The article gives the impression that the assigned risks pool (ARP) was created in response to soaring rates.

In fact, the ARP was always an integral part of the open market system, in place from 1 September 2000.

It does indeed provide a shelter of last resort, at high rates of premium, to about 40 firms each year - less than half of one percent of the profession.

Although the cost in excess of the premiums collected is paid by the insurers, and thus indirectly is met by the profession as a whole, the operation of the ARP confers two benefits.

First, inability to obtain commercial insurance may indicate matters amiss in the practice.

Membership of the ARP alerts the Office for the Supervision of Solicitors, inspections take place, and sometimes intervention follows at an earlier date than might otherwise have been the case, thus protecting the public.

Secondly, advice from the Law Society's professional indemnity section may assist firms to rectify the defects which have prevented them from obtaining insurance, so that in a subsequent year they are able to do so.

About a third of the firms in the ARP are able to obtain qualifying insurance in a subsequent year.

I wish I could agree with Mr Simmons' statement that 'this year rates have eased somewhat'.

His own firm may be unusually fortunate, but that is not likely to be the general experience.

We are still in a hard market, and solicitors may expect to pay rather more than last year.

Although the renewal season has almost two months yet to run, it is possible that the total premium may not be far from the SIF contribution of 1998.

Since 1998 the profession's gross fees have increased substantially.

So, as a proportion of gross fees, the cost of compulsory indemnity insurance will by comparison have fallen, even this year.

If a solicitor retires with a successor practice, then the successor practice provides run-off insurance.

If a solicitor retires without successor, the last qualifying insurer on risk provides run-off cover for six years, regardless of whether the premium is paid.

So the rest of us do not 'pick up the pieces', as the article suggests.

The Society has undertaken to see to it that cover is provided after the expiry of the six years.

As the first date on which that will be relevant is 1 September 2007, the method by which that cover will be provided has not yet been decided.

The suggestion that the SIF should be resuscitated for the purpose of providing insurance for the 40 or so firms that cannot obtain cover in the open market flies in the face of all economic reality.

An insurer dedicated to covering bad risks would be doomed to early failure.

Peter Farthing, chairman, professional indemnity committee, the Law Society