On the 7th May 2014, the Solicitors Regulation Authority, the SRA, announced a six week consultation on the solicitors professional indemnity insurance minimum terms and conditions and the consultation included some very significant and some might say surprising proposals as to the requirements for solicitors moving forwards.
As promised the Board have announced the results of the consultation on the 2 July 2014.
The board proposed a reduction in the minimum limit of indemnity under a solicitors professional indemnity insurance to £500,000 from the current limit of £2m and £3m for incorporated practices whilst introducing a requirement on all firms to ensure that they have “an appropriate level of indemnity cover.
This proposed change was subject to Legal Services Board approval but a decision was deferred in view of the lack of time available prior to the issue of the 11th version of the handbook to consider the ramifications of such a change.
Would the new minimum requirements mean lower premiums for solicitors indemnity insurance?
Whilst this may appear to be a consequence of these changes, the practical reality is that there is nothing in these changes that would automatically trigger a reduction in premiums for any firm. On the one hand firms now have a duty to ensure they have an adequate level of cover in place and this may compel some firms to increase their limit which would increase costs. On the other hand some firms may feel comfortable in reducing their limit of indemnity but that does not automatically mean reduced premiums.
Does reducing the solicitors indemnity insurance limit of indemnity reduce the premium?
The underwriter of any professional indemnity insurance policy prices the cover on the basis of their expectation of claims, both in the quantum and the frequency. For the most part, claims against solicitors will be assumed to fall well below the new minimum limit of £500,000, the frequency will remain the same so consequently underwriters are to all intents and purposes facing the same risks for the majority of firms. There is no trigger here to start reducing premiums.
This is not a new phenomenon, in 2005 when the minimum requirement was doubled the market premium for solicitors indemnity insurance increased by only 0.45%! The limits may change but the risks faced by insurers do not necessarily follow.
When should I start to obtain terms for 2014 solicitors indemnity insurance?
As soon as possible, we are already receiving early renewal terms for clients and in the light of previous years experience, the prevailing market conditions and concerns of insurer ratings it is likely that this renewal season will be a fraught time for many firms. Download your proposal and start the process as soon as possible to give yourself the best possible chance of obtaining the most favourable terms.
Choose your broker carefully.
- We always advise clients and prospective clients to choose their broker carefully.
- Do not submit your applications to a number of brokers, this works against your interests.
- Make sure your broker has access to a range of insurers and is not tied to a single provider or scheme
If you need further information call us direct on 0161 300 2930.