Insurance brokers have warned solicitors not to expect lower professional indemnity insurance premiums even if the rules on minimum cover are changed.
The Solicitors Regulation Authority is consulting on plans to reduce minimum cover for small firms to £500,000 and cut run-off to three years.
The consultation document states the proposals should encourage insurers to the market and bring the cost of insurance down in the long term.
But brokers working in the solicitors PII market say the timing of the consultation – ending less than four months before most firms are due to renew – has created uncertainty in the market and they cast doubts on the prospect of premiums becoming more affordable.
‘The combined pot of premiums is, by and large, insufficient to cover the costs of the collective claims and defence costs incurred when defending the profession against negligence claims,’ said John Wooldridge (pictured), director of PII broker Howden Windsor.
‘I doubt we will see a significant reduction in premiums by reducing the limit of mandatory PI to £500,000, as the vast majority of exposure to insurers lies in the first £500,000 of coverage.’
Ryan Senior, sales and service director for Aon, agreed it was unlikely that the plans would have a meaningful effect on premiums.
‘High-profile claims represent a small proportion of the overall market claims exposure,’ said Senior.
‘The proposed limit of £500k is very much the working claims layer, therefore, by reducing the limit, it is unlikely that there will be significant benefits for insurers that will manifest as wholesale premium reductions.’
Instead, the insurance industry has warned of the possibility that client protection could suffer if minimum terms come down.
Calum MacLean, risk manager for Lockton, said solicitors may face a greater risk of personal liability where insurance does not cover a claim.
Most brokers agree that lenders will have the biggest influence on what cover conveyancing firms take out, no matter where the minimum terms are set.
MacLean said reducing run-off to less than the standard prescription period may simply divert cost from PII to the compensation fund, and reduce client protection.
‘The firms that are struggling are most often those with high conveyancing exposure,’ he added. 'The reality is that lenders will still determine what insurance is acceptable to them. The root cause of conveyancing claims exposure needs to be addressed.
‘This more than anything else, would de-risk the profession, and radically reduce premiums.’
Wooldridge explained the reforms are unlikely to help smaller conveyancing firms that are often those with such high insurance costs.
He said: ‘The lenders will restrict panel membership to firms that can provide them with similar ‘copper-bottomed’ professional indemnity coverage that they currently enjoy.
‘I cannot see lenders agreeing to allow conveyancers on to their panels with limits of indemnity as low as £500,000.’
As for the immediate prospects, there is widespread dismay that the consultation has been timed to close on 18 June, just as brokers, insurers and law firms are weighing up their options.
Senior said: ‘The timing has caused uncertainty in the market and there needs to be a minimum of three to four months before changes are implemented.’
Wooldridge said changes to the minimum terms and conditions will not be announced until July at the earliest, and he predicted the insurance industry will face logistical problems in securing terms for all firms.
‘The prospect of law firms not receiving quotations prior to renewal has increased dramatically as a result of the confusion caused by this ill-timed consultation,’ he added.