Super-regulator acknowledges that PII costs are driving firms under

The oversight regulator wants to find ways to ease the hardening indemnity insurance market amid concerns that law firms are being driven out of business. The Legal Services Board identifies the issue of professional indemnity insurance as one of its key priorities in its business plan for the next year, published yesterday.

A consultation on the plan acknowledges that the market is hardening and that concern is mounting about the ability of legal providers to secure cost-effective insurance.

It continues: ‘This increasing financial pressure could lead to increased costs for consumers. It could also reduce the number of legal professionals operating in the market, impacting on consumers’ ability to access justice. Further, cautious approaches by insurers may limit the ability of legal providers to innovate. These issues are compounded by a lack of transparent PII claims data.’

The consultation also notes that some regulators are finding it hard to secure adequate insurance-backed compensation fund arrangements, making it less likely that consumers can be adequately protected if something goes wrong.

The LSB is sketchy about what it would do about the issue, pledging to use the evidence being gathered to identify what factors are contributing to the hardening marketing market and come up with ‘possible solutions’.

Law firms have become increasingly concerned about the cost of insurance premiums in the past couple of years. The issue was brought up by delegates at last month’s SRA compliance conference who said they were struggling to meet the extra costs.

In response, SRA chief executive Paul Philip said the regulator was not minded to intervene, saying providers would ‘have to take the rough with the smooth’ after years of benefitting from a soft market.

Philip added: ‘All the evidence, as opposed to anecdote, is that insurance premiums are going up and it is probably hitting profitability, but we would only intervene if we saw so much market failure [and] if it imposed on our regulatory objectives such as access to justice.’

The LSB consultation also proposes to increase the super-regulator's budget by 4.6% to £4.287m. These costs are met by the regulated profession, and the rise would add £1 onto every solicitor’s practising certificate fee.

The organisation said the proposed budget ‘reflects the resources required to meet the scale of the complex and long-term challenges facing the sector’.

The consultation closes on 4 February.

This article is now closed for comment.