SRA unveils PII reforms

The 1 October renewal deadline for professional indemnity insurance (PII) should be scrapped from next year, the Solicitors Regulation Authority has recommended in a consultation on client financial protection.

The SRA also suggests in its paper - published today - that the assigned risks pool (ARP) might be abolished in the future .

The regulator wants to give greater flexibility to firms and insurers when it comes to arranging PII cover, reported the Law Society Gazette.

SRA head of standards Richard Collins said: "If you have a more flexible insurance market, firms will be able to buy more appropriate cover.

"There’s a huge amount of intervention by us as a regulator in the operation of the insurance market, but we should only be intervening where there has been a failure in the market."

The report states that from 1 October 2011, the SRA proposes to: remove the single renewal date; reduce the time for which a firm is eligible to be in the ARP from 12 months to six months; remove the requirement for claims by financial institutions to be included in the minimum terms of insurers’ policies; and require insurers to tell the SRA about firms that fail to pay their premiums.

The SRA said that the single renewal date "arose as an accident of history". Consultants Charles River Associates (CRA) said in its report that "there is no market failure for which the appropriate regulatory solution is a single renewal date".

CRA also told the SRA it should conduct an investigation into the conveyancing process

The SRA paper says that, by removing financial institutions cover from the minimum terms, the majority of the 36% of firms that do not conduct residential conveyancing would benefit from lower premiums, while fewer firms would ‘dabble’ in conveyancing, and fewer would fall into the ARP.

From October 2012 and beyond, the SRA proposes to: exclude non-individual clients from insurers’ minimum terms; either scrap the ARP or restrict the work that ARP firms can do; fund the ARP through either a levy on the profession or a levy on insurance premiums; and consider whether insurers should be able to cancel policies for non-payment of premiums, or for fraud or misrepresentation in proposal forms.

The paper says that the ARP is "failing to facilitate the rehabilitation of firms", and that, over the existence of the ARP from 2000/01-2008/09, only 61 firms have successfully returned to the open market after they have been in the pool.

The SRA suggested that firms should be prevented from accepting new instructions and holding client money while in the ARP.