Following the SRA's
policy statement as part of its second stage financial
protection review (FP2), we have called for the Legal Services
Board to reject the SRA's decision to burden the Compensation Fund
with professional indemnity insurance (PII) cover for uninsured
firms.
We will provide updated advice to our members to make them aware
of all the changes stemming from the FP2 review in preparation for
the 2012 renewal.
The Law Society supports:
- The removal of the assigned risks pool (ARP) and introduction
of a 90 day period that comprises of an extended indemnity period
(EIP) and cessation period. If a firm is unable to obtain a policy
of insurance at the end of the 90 days, it must close. This is
consistent with the proposal put forward by the Law Society in the
first stage consultation. As a result of our response to the second
stage consultation, the SRA now agrees that the entire period must
be backdated to the end of the original policy. We maintain that
the EIP requires efficient enforcement action by the SRA to avoid
firms operating without insurance. We have supported amendments to
the authorisation rules to facilitate this and we look forward to
seeing the detailed rules that the SRA is expected to release later
this year.
- The maintenance of insurance coverage throughout the EIP and
cessation period even if work is conducted in breach of the
requirement to only perform work in connection with existing
instructions throughout the indemnity period. We have successfully
convinced the SRA that its proposed changes would have resulted in
potential client detriment and additional risk to the Compensation
Fund.
- As a compromise, the SRA will allow insurers to obtain
reimbursement from insureds who conduct work contrary to the
rules.
- The SRA's decision to not introduce a notice period prior to
the EIP. We considered this proposal was not practicable. However,
we note that the removal of the single renewal date from 1 October
2013 will result in greater flexibility in policy length, which may
allow insurers and insureds to work through issues without
necessarily triggering the provisions of the EIP.
- The introduction of a requirement that insurers are transparent
about their credit ratings (or lack of rating) for the 2012
renewal.
The Law Society does not support:
- The transfer of the existing 'side-arrangement' from the ARP to
the Compensation Fund, whereby coverage is provided to uninsured
firms that have not applied or are not eligible to enter the ARP.
We have called for the Legal Services Board to reject these changes
until there is a full review of the Compensation Fund and scope of
coverage.
- The SRA's failure to introduce mandatory acceptance periods
despite the majority of respondents being in favour of this
proposal.
- The SRA not addressing the cost issue of the EIP premium.
We recognise that the SRA's decision to adopt a tiered approach
of 10m tranches for ARP liability in 2012 is in keeping with
the agreed position as ratified by the Law Society Council and set
out in the SRA's previous policy statement.
However, a year on, we take a far less pessimistic view of the
likely development of the market and are therefore disappointed
that we were not able to persuade the SRA to revisit the issue of
the liability split in order to maintain the equitable solution
that was at the heart of our agreed position.
This is particularly the case given the data that was available
to the SRA when making its decision.
Read
a summary of the Law Society's
full response to the FP2 review
View the consultation documents