Solicitors, insurance and the GISCSolicitors have been approached by insurance companies about the new regulatory regime for insurance intermediaries.

Alison Crawley explains the current situation and what changes are likely in the future

Many solicitors act as insurance intermediaries to help clients find either general or specific legal insurance policies.

Traditionally, many conveyancing firms have offered services relating to general insurance such as buildings or household effects.

More recently solicitors have helped clients find insurance solutions to legal problems with products such as unoccupied property insurance and defective title insurance.

The reduction in public funding in personal injury cases and the growth of conditional fee agreements has seen the development of new after-the-event insurance (AEI) to cover the risk of legal costs and litigation.

Solicitors involved in conditional fee work are required to discuss the availability of such insurance with clients, meaning that such products have to be routed through solicitors rather than traditional insurance brokers.

Insurance intermediaries are not subject to any statutory scheme of regulation.

However, The Guide to the Professional Conduct of Solicitors requires solicitors to comply with the Association of British Insurers (ABI) code of practice when acting as an insurance intermediary.

Changing regulatory positionFollowing concerns with the insurance intermediary market, the government concluded that statutory regulation was not the way forward for insurance intermediaries, provided that a robust and comprehensive voluntary system could be established.

This has led to the setting up of the General Insurance Standards Council (GISC).

The council is supported by all insurance companies and will become a compulsory regulator by the fact that all insurance companies will agree only to deal with intermediaries - for example, agents or brokers - who are registered with GISC.

Some solicitors have already received letters from insurance companies warning them that they will only be able to remain agents if they register with GISC.

It is understood that some solicitors are being told that the requirement to register is imminent or will be required by April 2001.

That is not the case.

The timetable for implementation of the compulsory element of the scheme has not yet been set by the GISC board.GISC has now received clearance from the Office of Fair Trading for the rules and scheme of registration.

The OFT supports the public interest aims of the single scheme that would deliver common consumer protections across the industry.

The GISC board first has to decide when to implement the rule that will have the effect of making registration by intermediaries compulsory.

It will also consider transitional arrangements to ensure that intermediaries and agents have time to consider their position and apply, and to allow time for GISC itself to deal with the applications, for registration.In the meantime, the Law Society has been monitoring the development of GISC and has had helpful discussions with it on the particular position of solicitors.

The Society has been discussing whether the fact of Law Society regulation should form the basis of an exemption for solicitors from having to register with GISC, so avoiding the cost of unnecessary dual regulation in circumstances where there is little risk to the clients of solicitors.

A similar argument achieved an exemption for solicitors from the requirement to be authorised by the FSA when providing limited investment business services which arise out of legal work.

Future for solicitors and insurance workWhatever happens on the question of any possible exemption, the following options are likely to be available to solicitors under the GISC scheme of regulation:l Introductions - many solicitors simply introduce clients to insurance intermediaries - increasingly so, given the growing complexity of the market and the growth of choice for consumers, particularly in general insurance products.

If solicitors simply introduce the client to an intermediary then they will not be intermediaries themselves and so will not have to register with GISC.

It is understood that many firms have limited and declining amounts of general insurance work as agents of insurance companies.

Now may be the right time to consider whether to operate in the future simply as introducers, passing on clients with any ongoing renewal work to brokers.l Appointed agents - if Law Society rules permitted, firms of solicitors could be the appointed agent of an independent insurance intermediary (thus ensuring that the client has independent advice).

In that case, the intermediary can, under the GISC scheme, take regulatory responsibility for the solicitor, meaning that the solicitors' firm would not have to register with GISC.

Having said that, the solicitors' firm would still be regulated to the same effect via its relationship with the principal rather than directly by GISC.The Law Society is exploring whether this option can be permitted without compromising solicitors' independence.l Registration with GISC - Even if no exemption were available and solicitors have to continue to operate as intermediaries, for example, in order to be able to provide AEI insurance products to clients, then the additional regulatory burden would not be great as solicitors are already subject to most of the regulatory requirements in relation to their practice as solicitors.

Solicitors would have to register with GISC but currently the fee structure reflects the amount of commission income.

Most solicitors would probably only pay the minimum fee of 200.

Solicitors would also have to comply with the code of practice - which is based on good business practice and client care.

As indicated earlier, solicitors are already required to comply with a similar ABI code of practice.

Training and competence requirements under the GISC scheme will be in keeping with the nature and extent of the work.

Solicitors who only deal in a limited range of products linked to their legal practice will clearly not require the same sort of training or qualification that would be required of a general insurance broker.The GISC rules already recognise that compliance with the Solicitors Accounts and Indemnity Rules is sufficient and that solicitors would not need to comply with any solvency requirements.GISC intends to monitor compliance with the code of practice.

The Law Society is discussing issues of client confidentiality with it and whether monitoring by the Society would assist.

On complaints handling, GISC members are required to be members of a recognised dispute resolution service.

Again, the Society would be discussing with GISC the sense in ensuring that clients of solicitors have a one-stop shop for complaints - the Office for the Supervision of Solicitors.

Solicitors who have been contacted by an insurance company or broker should wait for additional information on the development of the scheme and, in particular, the timetable for registration before doing anything else.

Solicitors may wish to use the approach from insurance companies as a reason to review current agency relationships.

Clearly, the larger insurance companies may well be using the scheme to rationalise their existing panels.

In the meantime, the main task for the Law Society is to ensure that there is a cost-effective way for solicitors to continue to provide necessary insurance solutions to their clients' legal problems, particularly where, as with conditional fee agreements, solicitors are required to discuss the availability of insurance with their clients.

The society is talking to brokers in this market and GISC to find the best solution for solicitors and their clients.Alison Crawley is head of professional ethics at the Law Society