The Legal Services Consumer Panel has declared that there is not enough evidence to justify the SRA’s radical plans for indemnity insurance reform.
Yesterday the SRA closed a consultation on proposals to limit the level of mandatory PII cover to £500,000, and reduce minimum run-off cover from six years to three. An SRA board meeting on 2 July is expected to approve the plans, which are intended to reduce the burden on firms and cut costs for consumers.
In its response to the consultation, the consumer watchdog declared its opposition to the £500,000 minimum, querying what real gains would ensue. The panel cited ‘weaknesses in the current evidence base’ amid concerns that the reforms would have little impact on prices.
‘Should the savings to consumers not materialise as a result of the proposed changes, consumers would lose current protections but without gaining anything,’ it warned. ‘Risk would be transferred to consumers at marginal or no benefit – this would not be a fair or desirable outcome.’
According to panel research, when faced with the option of paying lower premiums and having greater choice in the level of protection provided, consumers were happy to pay for the protections and did not want to see these removed.
Reducing the run-off period, the panel continued, would mean solicitors offering less protection to consumers than is required by other regulators.
The panel said the SRA estimates are based on data from the Solicitors’ Indemnity Fund which is ‘at best 15 years out of date and at worst over 25 years old’.
To support the proposals, the panels said it would need to see evidence they would have the net benefits for consumers which the consultation claims, such as lower prices, redistributive effects and increased competition in the insurer market.
’The consultation document is light on data and relies too much on arguments which can be challenged,’ it added.
‘At present we are not convinced that loosening regulations in the area of financial protection would lead to equivalent gains for consumers.’
The panel, which is chaired by Elisabeth Davies (pictured) said it would prefer to reduce the frequency of solicitors holding client money, which could help to reduce PII premiums since client accounts are seen as a particularly high risk area.
Meanwhile, The Council of Mortgage Lenders warned of ‘unintended and undesirable consequences’ for the conveyancing market in its response to the consultation.
The organisation said clients will seek out other professional who offer greater protection than solicitors, while the proposals do little to address why insurance claims are made against conveyancers.
The CML also said the proposed timescale was ‘incredibly short’ and does not give the market time to react and prepare.
Yesterday the Law Society reiterated its own opposition to the PII reform plans, warning that there is insufficient time for consideration of any changes and that they could be counter-productive.