Law Society to discuss replacing ARP

The Law Society has invited industry response to an alternative structure that could replace the assigned risk pool (ARP).

The Society's alternative, which will be debated by the Law Society Council later this month, would mean legal firms unable to find solicitors' indemnity insurance on the open market would have three to six months to find alternative cover, merge with another firm or cease practicing.

Under these proposals, the current insurer would provide the mandatory six years run off cover in place of the ARP.

Law Society chief executive Desmond Hudson said the alternative could provide protection for firms and their clients and could help cut ARP costs.

Hudson said: ""In recent years, the cost and poor regulation of the ARP has been a factor in insurers’ decisions to exit the market or reduce market share and also operates as a deterrent to new insurers looking to enter the solicitors’ PII market.

"Under this possible approach insurers will only be liable for the risks of firms they actually cover; removing liability for pooled risks that they did not insure in the first place. This gives insurers an incentive to write risks in contrast to the current situation where ARP uncertainty exposes insurers to risks of others and provides a perverse incentive for insurers to limit market share.

"We are seeking views in advance of Council's consideration of our formal response to the SRA’s current consultation which, if adopted, would also include the SRA amending the terms of its qualifying insurers' agreement so that insurers are required to inform practices six months before expiry whether or not they will offer them PII renewal.

"Under this possible approach if a firm fails to find cover on the open market before their policy expires they would be covered by their existing insurer for an additional three-month period, at a rate based on the existing premium.

“In addition, our proposal would require insurers to respond to proposals within a specified time and where they issued quotes to make them available for a reasonable period, say 21 days.”