Insurers forced to foot £16m bill for solicitors’ PI claims

Insurers have been ordered to pay up another £16m in professional indemnity (PI) claims for the assigned risk pool (ARP) of solicitors.

Underwriters are likely to now heap pressure on the Solicitors Regulation Authority (SRA) to follow through with its proposals to scrap the ARP.

Companies including Zurich and Chartis (formerly AIG Europe) will have to pay for claims dating back as far as 2000.

An SRA spokesman said: “The ARP manager has recently made a cash call in respect of a number of indemnity years since 2000, totalling £16m. Prior to this, the total of cash calls on insurers had reached £28m.

“Under the terms of the qualifying insurers agreements (signed by each insurer each year) the insurers agree to meet these cash calls as they fall due.”

The ARP system was set up originally to help solicitors at high risk of claims, which could not obtain or afford PI cover on the open market, temporarily gain cover.

The cash call for ARP claims will be divided up between insurers, in proportion to capacity that has been taken out on the open market.

AIG Europe led the way in premium income with £36m last year, and Zurich Professional took on £41m during 2008, although the SRA did not say whether the cash call related to those years.

No one from Zurich was available for comment.

Law firm Beachcroft professional risks partner Mike Willis estimated that insurers suffer ARP loss ratios of up to 600% and also experience difficulty getting the premium from solicitors.

He said: “This cash call highlights the cost of the ARP to insurers and ultimately to the solicitors’ profession. It also emphasises the significance of the SRA’s current proposals to all but abolish the ARP from October 2010. I doubt this will change insurers’ views on these proposals, as the potential costs of the ARP have been known for some time, but it may harden the resolve of those who want to see it come to an end.”

The SRA is currently carrying out a consultation, which ends in February, to end the ARP.

As an alternative, the SRA is proposing to make it easier for struggling solicitors to sell their practices by putting PI insurance contracts into run-off, resulting in the buyer not being weighed down with the seller’s poor claims record.

Meanwhile, the Irish Law Society said a record number of firms will be forced out of business due to a doubling in PI cover.