Changes on the horizon for PI cover
In March this year, the SRA published a consultation paper on its proposal to make some changes to compulsory professional indemnity insurance (PII) cover for solicitors. This is not the first time that changes to cover have been proposed by the SRA. In November 2014, the SRA’s proposal to reduce the level of compulsory cover to £500,000 was rejected by the Legal Services Board on the basis that there was not enough evidence the changes would reduce the premium for PI cover along with an increased risk to clients.
The proposed changes would see the removal of the current ‘one-size-fits-all’ rules on PII. This means firms could have the flexibility to choose the right level of insurance to suit their business and client base while ensuring an appropriate level of cover to protect their firm and the reputation of law firms nationally.
The proposals released in March included the following changes:
- A minimum level of compulsory cover required for claims will be set at £500,000 except those that arise from conveyancing services where the minimum level of cover will be £1 million. This is reduced from the previous requirement of £3 million.
- Keeping the need for a six-year run off period of insurances after a firm closes but capping the overall level of cover at £3 million for firms that have done conveyancing work and £1.5 million for all other firms.
- Removing the need for compulsory insurance to include cover for clients with a turnover that is greater than £2 million.
- Allow greater flexibility in arrangements for defence costs. This would allow caps on defence costs or excess arrangements that include defence costs.
The SRA believe these changes will achieve premium savings that could be passed onto consumers. They have also said that lower premiums could remove barriers to entry to the legal profession and encourage new firms. This would increase competition and the opportunity for people to access more affordable legal services.
Paul Phillip, SRA Chief Executive, said: “Ten years of data shows our current one size fits all arrangements are too rigid. Our proposals will help firms – particularly small ones – make sure they are not paying more than they need to protect themselves and their clients. The public would still have an appropriate level of protection, while potentially benefiting from lower costs and more choice”