The Solicitors Regulation Authority will recommend abolishing the assigned risks pool in a consultation to be launched today. The regulator also wants to make it easier for struggling law firms to be taken over rather than shut down.

The consultation outlines three proposals for change to the ARP, which is the insurer of last resort for firms that cannot obtain cover on the open market. Under the first option, which is ‘firmly recommended’ by the SRA, firms will no longer be able to enter the ARP. However, firms still in the pool at next year’s renewal deadline will be entitled to stay there until they cease to be eligible.

The remaining two proposals – which the SRA says would not ‘adequately’ address the problems – would be to bar newly created firms from obtaining an ARP policy, or to reduce the maximum time for firms to stay in the ARP from two years to one.

In his monthly column for the Gazette, SRA chair Peter Williamson argues: ‘The ARP is costing a huge amount of money but demonstrating little benefit. Unless urgent action is taken, the situation can only get worse. Our twin objectives are to preserve client financial protection and to maintain a competitive market for professional indemnity insurance.’

In a parallel consultation, the SRA proposes making law firm acquisitions more attractive by removing a buyer’s liability for any negligence claims that later surface from the acquired firm. The SRA proposes allowing an acquiring firm to buy special run-off indemnity cover for the acquired firm shortly after the takeover occurs. Any negligence claims against the acquired firm would then be covered by the run-off cover, rather than the acquiring firm’s main insurance policy.

The SRA also wants to amend its definition of a ‘successor practice’. It noted anecdotal evidence that some solicitors who want to retire are unable to sell their firm as no firm wanted to be classed as a ‘successor practice’ for professional indemnity insurance purposes.

The proposals follow a second successive year of difficulty for many solicitors in obtaining professional indemnity insurance, with up to 359 firms falling into the ARP.

The SRA notes in its ARP consultation paper that ‘instead of assisting firms to get back into the market, the effect of the ARP seems only to postpone the demise of the firms that enter it.’

The ARP charges punitive premiums of up to 27.5% of gross fees.

The consultations, which close on 18 February 2010, are due to be published at www.sra.org.uk/consultations today.