The Legal Services Board (“LSB”) has published a decision notice confirming that the £2m minimum level of Professional Indemnity Insurance (“PII”) cover for solicitors (£3m for incorporated firms and LLPs) should not be reduced at present.
The Solicitors Regulation Authority (“SRA”) had proposed to reduce the minimum level of PII cover to £500,000, with a view to helping smaller firms and increasing flexibility in the market.
The case presented by the SRA in support of its application was found to be unconvincing by the profession’s oversight regulator, with LSB chief executive Chris Kenny commenting:
“What matters is that firms have the right incentives to assess their risks accurately and so ensure that consumers are protected. It is not clear to the board that a minimum level of cover necessarily has a place in achieving that and we were certainly not persuaded by the evidence put forward for the figures proposed…We welcome the SRA’s decision to comprehensively review financial protection arrangements and expect that it will reflect the outcome of this application in its further work.”
The plans had been severely criticised by mortgage lenders and industry bodies including the Law Society and Legal Services Consumer Panel, due to concerns over increased risks for clients and costs for firms. Typically one of a firm’s most significant overheads and a crucial part of business risk management, the move on PII would have constituted a major and controversial shift for the profession.
The Law Society president, Andrew Caplen, welcomed the decision as good news for solicitors and clients:
“If implemented, the changes would almost certainly have increased risks to consumers and costs for firms. That amount of cover would be insufficient for the vast majority of firms and would be unlikely to result in any significant lowering of premiums.”
SRA Chief Executive Paul Philip expressed disappointment with the decision but declined to comment further pending consideration of the LSB’s correspondence. The SRA has the option to put forward a new application in the future.