Time to reform the ARP

The ARP is a toxic pool for insurers, and it’s clearly getting worse every year. The ideal solution for the industry is proposed by Chartis: why not place a levy on solicitors’ firms to pay for the pool. But solicitors would no doubt thrown their arms up in despair at the proposal. So where do we go?

First off, lets discuss the case of the ARP, which has estimated losses of £45m for 2008/2009 year. That’s a huge amount that’s bleeding out of the pockets of insurers. It’s likely to get worse when Quinn clients slip into the pool for 2010/2011.

Insurers are especially worried about the ability of small firms to stave off the threat of being sued, especially where there is so much fraud going on in conveyancing.

Something clearly has to be done before premiums become prohibitive, especially for one or two man solicitors’ firms.

This is why there is a review taking place.

Charles Plant, solicitors regulation authority (SRA), says: "In the wake of our review of our overall approach to regulation and the expanding legal services landscape, we are about to start a root and branch review of client financial protection, with a view to introducing the outcomes in time for the renewal on 1 October 2011. The review will be wide-ranging and will include both compulsory professional indemnity arrangements and the Compensation Fund. We shall consult closely with the profession, consumer organisations, and the insurers as we undertake this work.”

Insurers should demand a few things if the ARP is to continue. Firstly, that all firms in the ARP pay their premiums or are banned from practising.

One broker told Insurance Times that around half of all ARP firms don't pay their premiums.

Secondly, insurers should demand an end to the crazy situation where they pay for six years run off cover. That’s too much of a restrictive policy regulation and potentially very costly.

Those are two changes that are achievable, and they would make the ARP a lot more palatable for insurers. They should make this clear to the SRA in the forthcoming review, but that should only be the starting point of negotiation.