Despite deep concerns from insurers, the Solicitors Regulation Authority (SRA) claims changes to the Assigned Risks Pool (ARP) are working after the closure of 82 law firms.
Since July last year, when changes were made to ensure firms stuck in the ARP closed down, 82 firms covered by the ARP during 2009-10 have shut.
In 2010-11, 46 firms covered by the ARP have already closed and ten have been intervened, the SRA says. A further 48 successfully obtained market insurance for the next indemnity year.
Despite the declaration of success, insurers are still unhappy that the ARP - a last ditch placel where law firms without professional indemnity insurance can get cover - is still in existence and want the system termniated immediately, instead of having to wait until 2013.
Chief executive Antony Townsend said: "The increasing size and cost of the ARP was causing understandable concerns and resentment throughout the profession as firms that could find insurance were facing rising premiums as they helped meet the payments of the ones that couldn't.
"It was also having the knock-on effect of creating a situation where rising premiums meant that more firms were unable to afford cover on the open market.
"It had reached a point where we had to take decisive action in the public interest and that of the profession."
The main points of an ARP breifing update are:
- Despite concerns about the amount of unpaid premiums by ARP firms, the ARP fund manager is more actively pursuing these payments on behalf of the insurers and the SRA is taking regulatory action for non-payment against 126 ARP firms. This work has led to formal disciplinary proceedings being commenced against ten firms, with others subject to other regulatory measures.
- The SRA claims it has put greater effort and resources into helping firms manage their way out of the ARP. The number of firms that have been visited has almost doubled - 96 firms were visited under the strategy in 2009/10 while 181 have been visited so far this year.
- Concerns that the enforcement strategy would have an adverse impact on BME majority-owned firms have not been borne out. The data for 2009/10 demonstrate that proportionately more white majority-owned firms closed either through intervention (6%) or through orderly wind down (33%) than BME majority-owned firms (3% and 31% respectively). What's more, BME majority-owned firms were more likely (25%) to find insurance on the open market in 2009/10 than their white majority-owned firm (16%) counterparts. This trend has continued in the outcomes data so far available for 2010/11.
- The cost of funding the ARP, providing Professional Indemnity Insurance (PII) to firms that cannot get cover on the open market, has been increasing on an annual basis with recent figures showing it represented over 15% of total PII premiums for solicitors in England and Wales. The SRA Board has recently adopted proposals for the future of client financial protection, which will see the ARP replaced by alternative arrangements for the 2013/14 indemnity year. Recognising the need to control risks and costs, the SRA Board agreed last July that a new enforcement strategy should be brought in to help firms manage their insurance payments and shut down the ones that failed to pay.
