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People need to think through the consequences very carefully.
1. It is misleading to see the reduction as being to £500k/£1m (the latter for conveyancing) - for much of the business of many firms the compulsory limit will be nil (because of the exclusion relating to commercial clients.
2. Any saving in premium will be comprehensively eclipsed by the need to buy top up.
3. The top up market for solicitors (first excess layer) is shrinking with insurers withdrawing from this market or merging, so capacity and price may be affected.
4. There will be substantial risks in relying on other firms’ undertakings. (Think Dreamvar.)
5. Anyone retiring or selling a practice (even with a successor practice) will have to consider buying run-off cover – if they can get it, and it will probably only be for 2 years at a time; if you have claims, it may be unavailable. Who wants to spend their pension on run-off cover?
6. Where there are disputes between insurers (e.g. late notification), in many cases the firm will not be able to rely on either insurer handling the claim pending resolution of the dispute.
7. More coverage disputes – they are increasing already.
8. The impact of aggregation of claims (the AIG v Woodman case) will be far more significant.
9. Even for private client work, the limits are dangerously low. I have seen a £2m claim from a £2k personal injury settlement, and a £3m claim from a £25k property purchase.
10. I expect the changes would result in some insurers offering policies which offer slimmed down cover (except for the limited circumstances where the revised Minimum Terms and Conditions apply). Experience outside the field of solicitors’ claims would suggest that anyone buying such a policy can expect to see far more coverage issues.
11. The SRA wishes to encourage new entrants to the market, but the only new entrants who might benefit from the change would be firms doing criminal work (is anyone really going to do that?) or immigration.