Assigned Risks Pool

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Further information

What is the ARP?

The assigned risks pool (ARP) provides a 'safety net' for firms that cannot get cover from qualifying insurers or cannot reasonably afford the terms available to them.

How is the cover underwritten?

The cover is underwritten by the qualifying insurers in the same proportion as their share of the total declared premium income from compulsory cover for the relevant indemnity period.

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How long can a firm be insured through the ARP?

Currently, firms may apply to be insured through the ARP for a maximum of six months. If a firm is unable to obtain cover with a qualifying insurer in the open market by the end of the six-month period, the firm will have to cease to practise.

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What are the terms?

Those firms receiving cover under the ARP will be required to pay a high premium, will be inspected and monitored (at the firm's expense), and may be required to attend approved courses and to implement specified practice management measures. For the 2011/12 ARP onwards, the SRA also requires ARP firms to plan and implement arrangements to either obtain open market cover or close in an orderly fashion.

Firms that use the ARP for temporary cover receive discounts on their ARP premium. The discounts do not apply if claims or circumstances that give rise to claims are notified to the ARP during the indemnity period concerned. It is a disciplinary offence to fail to pay premiums.

Who else will the ARP cover?

In addition, in keeping with the duty to safeguard the interests of the public, the ARP will cover claims against firms which do not, for whatever reason, secure their own insurance arrangements in accordance with the rules, including run-off cover in the case of firms which have no policy of qualifying insurance in place when they cease practice.

This 'uninsured' or 'non-applied firms' role of the ARP is akin to the Motor Insurer's Bureau for uninsured drivers. Where firms fail to effect cover, however, the ARP manager is entitled to recover the amount of any claims and any associated costs, plus interest, from the principals of the firm concerned. It is also a disciplinary offence to practise without insurance.

From 1 October 2012, this role will be transferred to the Compensation Fund.

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Changes to the ARP

The SRA's decision on its first stage consultation on the future of client financial protection arrangements proposes to make further changes to the ARP as at 1 October 2011 and in a separate policy statement sets out a transition plan to implement an extended policy period (EPP) by the 2013/14 indemnity period. The EPP is broadly similar to the ARP alternative that the Law Society proposed in its consultation response.

Changes to the ARP for the 2011/12 indemnity period:

  • reduce the time a firm can spend in the ARP from 12 to 6 months
  • require ARP firms to plan and implement arrangements to either obtain open market cover or close in an orderly fashion
  • remove the liability of Qualifying Insurers (QIs) to meet the ARP liabilities of insolvent QIs
  • clarifying the reporting obligations of QIs; and
  • make public the insurer of firms

Changes to the ARP for the 2012/13 indemnity period:

  • profession will share the liability for the 2012 ARP with insurers – the SRA intends to use the Solicitors Indemnity Fund (SIF) to provide the profession's share of ARP funding in this way:
    • 0-£10m SIF
    • £10-20m Insurers
    • £20-30m SIF/profession
    • £30-40m Insurers
    • £40-50m SIF/profession
    • £50m+ Insurers
  • non-applied firms' role will be transferred to the Compensation Fund.

Introduction of the EPP for the 2013/14 indemnity period

The SRA will consult further about the details of the EPP but its Policy Statement suggests that the EPP should be for 90 days.

First 30 days of the EPP will be used by the firm to find alternative qualifying insurance.

The next 60 days be used for orderly closure or merger of the practice. The firm is not permitted to take on new work but is permitted to continue to work for existing clients as the practice is winding down.

Law Society response

We successfully lobbied the SRA to change its approach to the ARP and adopt our alternative approach.

We have also decided to support the 2012 ARP funding proposal, subject to the SRA being transparent about its ARP management strategy and being open to suggestions about how to better control and manage firms.

Layering of liability (with insurers being responsible for the unlimited layer) represents the best available outcome for the profession in the circumstances. It is important that insurers retain some liability for the final ARP. Without Law Society support, it likely that the SRA will directly levy the profession for the entire 2012 ARP.

The SRA is currently consulting on the implementation of these future policies as part of its second stage review of client financial protections. The consultation closes on 17 January and the Law Society will respond.

Law Society support

You can obtain further assistance from our Practice Advice Service by emailing professionalindemnityinsurance@lawsociety.org.uk.

If you are in the ARP and are unable to obtain open market insurance, the Law Society has published a practice note on the regulatory requirements of closing down your practice.

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