The number of law firms facing closure after failing to secure professional indemnity insurance has jumped to 175, the Solicitors Regulation Authority announced today. The figure is more than double the total of 69 announced as the renewal deadline closed last week and an eight-fold rise on last year. 

However fears that thousands of firms would find themselves without cover appear to have been unrealised. 

The regulator’s figure is for firms that have for the new extended indemnity period (EIP) scheme, introduced this year to replace the Assigned Risks Pool (ARP), which last year handled 29 applications from firms.  

The ARP ceased to exist from 1 October. Instead firms receive 90 days further cover from their old insurer while they try to obtain a new policy. Firms that cannot find cover must close at the end of that 90 days.

Of the 185 firms that applied for the EIP, 10 have since secured cover, leaving a total of 175 that are now in the 90-day period, the regulator said. A firm may continue to practise normally for the first 30 days while it attempts to obtain a qualifying insurance policy, but after that, the firm may only work on existing instructions.

The regulator said that the number of firms in the EIP is likely to change on a regular basis before the 90 days ends. 

Andrew Allen, head of legal sector at chartered accountant Francis Clark, said that the figures mark a significant change. ‘Some firms not favoured by insurers, whether due to their work mix, size or historic claims records, were always going to struggle to secure cover. However, for the first time many mainstream legal practices were faced with real uncertainty and even fear as it became clear that even for “good’ firms”, in an increasingly volatile sector, there is no longer any guarantee of automatic PII cover.’

Law Society president Nicholas Fluck said: ’We expect the number of firms within the extended indemnity period to fluctuate as practices continue to seek and secure cover. This is similar to previous years when firms entered the ARP and exited by obtaining cover within the 30 day window. Last year, only 25 firms remained in the ARP at the end. The SRA will need to take effective measures to ensure firms do not continue to trade without insurance beyond this period, otherwise the entire profession will pay for any uninsured claims via the Compensation Fund.’
He added: ‘The specific difficulties that some firms faced in obtaining cover within the 2013-14 renewal, stem from the continued trend of withdrawal from the market of rated insurers due to unsustainable underwriting losses; most notably, the decision by XL - the largest insurer in the market - to withdraw from the 1-3 partner segment last year. This effect was compounded by the aborted transfer of policies from Balva (an unrated insurer in administration) to Berliner Versicherung Aktiengesellschaft, which left around 1,000 solicitors, in the lurch, looking for insurance at the last minute.’