The Legal Services Board (LSB) has today (27 November) published its decision on the Solicitors Regulation Authority (SRA) professional indemnity insurance (PII) application, and has refused a proposed reduction in the minimum level of PII cover from the current level of £2m to £500,000.
In early July the SRA voted through proposals designed to cut costs for the profession, in particular to cut the minimum compulsory cover despite strong opposition from the Law Society and the City of London Law Society (CLLS) over the speed of change and lack of consultation with insurers.
The LSB did, however, approve parts of the application relating to the introduction of a new outcome in the SRA’s Code of Conduct 2011 which requires firms to assess and purchase an appropriate level of PII.
The move would have constituted a substantial – and controversial – shift for the profession. Considered one of a firm’s most significant overheads which typically equates to around 1.5% of turnover, PII is viewed as a crucial component of the business risk management ‘toolkit’ of firms regardless of their claims histories.
On the decision, Legal Services Board chief executive Chris Kenny, said: ‘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.’
In response Paul Philip, SRA chief executive, said: ‘We have received the letter from the Legal Services Board. This is a disappointing decision. We will be considering the correspondence carefully before commenting further.’
sarah.downey@legalease.co.uk
For more coverage on indemnity insurance see: Protection rackets – behind the controversy of looming reforms on insuring law firms