Chartis attacks solicitors' PI reforms

Chartis has attacked the Solicitors Regulation Authority (SRA) reforms to solicitors' professoinal indemnity (PI), describing them as "highly disappointing".

Chartis also said and there has been "little regard" to insurers consultation responses.

A Chartis spokesman said: "The result of the extensive consultation process by the SRA has been highly disappointing. It appears that the SRA has paid little regard to the consultation responses they have received from the industry. The key structural changes required to the framework within which insurers and solicitors interact have been delayed again.

"Chartis, who hold the leading share of the primary England & Wales Solicitors’ market, believe that the Assigned Risks Pool needs a fundamental overhaul before this year’s renewal season (October 1st 2011).

"According to our projections, between 2005 and 2009, the ARP will have cost Insurers well in excess of £100m. In light of the challenges facing the smaller firms within the legal sector, there is no expectation that these figures will shrink. In fact, we expect the number of firms in the ARP to grow."

Chartis was speaking in the wake of the SRA's annoncement of reforms to solicitors' PI.

Included in the reforms are that in October 2011 the amount of time a firm can remain in the ARP will be reduced from 12 months to six months; from October 2012 the ARP will be jointly funded by qualifying insurers and solicitors; the ARP will be replaced in October 2013 with system where insurers offer three-month extended policy periods; the single renewal date will be maintained until October 2013 to facilitate the transition.

Chartis continued: "Insurers cannot continue to bear unquantifiable levels of risk from Legal Practices that they elected not to trade with particularly with the stricter capital requirements that Solvency II is likely to bring.

"Against this background Chartis believes a fresh approach is needed, one in which the ARP has no place. Insurers should be liable only for those exposures they elect to write; with the 6 year run-off firmly sitting with the last commercial insurer.

"Why should excellently run law firms pay higher premiums simply because Insurers cannot accurately price their ARP exposure with the consequence that they have to use the most conservative underwriting models. This market distortion is undesirable, and deters new insurers entering the market.

"Chartis has been and remains supportive of the solicitors’ PI market but changes are necessary for this market to operate efficiently. These changes are needed quickly or we may see a contraction in capacity in this market."