The Solicitors Regulation Authority has admitted that the cost of indemnity insurance could rise this year if it goes ahead with barring unrated insurers from the solicitor market.
The regulator wants to increase protection for firms after the high-profile problems of some unrated insurers in recent years.
SRA board papers revealed that premiums could increase by as much as 15% for affected firms if all three unrated insurers exit the market.
Even if the insurance firms obtain a new rating, it is likely they would have incurred extra costs which could be passed on to policyholders.
According to SRA figures for 2013/14, more than 2,500 firms have policies with unrated insurers. However, the two biggest providers of the three are considering seeking a rating, leaving 134 firms potentially affected directly by the proposed rule change.
The SRA commissioned insurance broker Marsh to review cover arrangements and protections regardless of the rating of PII providers.
The review was started after Latvian insurer Balva went into liquidation and Gibraltar-based Lemma collapsed in September 2012. Both were unrated.
Agnieszka Scott, SRA director of policy and strategy, said: ‘Recent events have made us look again at this issue to ensure that clients are protected. And we have been told that there may be inconsistencies, so we are proposing on insisting on a rating for insurers on the participating list.’
An eight-week consultation on the issue is likely to start next week.
Meanwhile, the SRA said it has identified around 10 firms without insurance that have yet to take the ‘right steps’ to close down.