SRA's proposed ban in doubt
A proposed ban on unrated insurers would leave 134 law firms with invalid indemnity cover, the Solicitors Regulation Authority (SRA) has acknowledged.
The SRA Board voted this week to launch an eight-week consultation on a rule-change to require insurers to have a financial strength rating of at least B from a recognised ratings agency.
The decision follows research by insurance broker and risk specialist Marsh which suggested clients of firms with unrated insurer policies do not receive the necessary protection. The SRA commissioned Marsh to conduct the research amid concerns over insurers, including Latvian insurer Balva, which has gone into liquidation, and the collapse of Gibraltar-based Lemma in September 2012.
An SRA spokesperson said the Board acknowledged that a ban on unrated insurers could create “some uncertainty” in the short term, for example, as stated in the consultation’s impact assessment, one insurer of 134 firms was unlikely to be rated. Those firms would therefore have to seek cover elsewhere.
However, “the aim is to create a stable, competitive market that affords protection for all consumers,” he said. “There is no point in writing insurance for a year and then disappearing when firms need six years run-off.”
Frank Maher, partner at Legal Risk, says a ban would impose “further pressure” on firms.
According to an SRA list released this month, 136 firms failed to renew indemnity cover by the required date in the last round, although Maher said some of the firms should not have been on the list. One firm on the list, for example, had been given an affordable quote but had then decided to merge, while another had planned to retire anyway.
The SRA spokesperson said the list was “a list of firms which did not have insurance on 1 October, and that didn’t have insurance on 29 December”.
Agnieszka Scott, SRA director of policy and strategy, said the Board had previously resisted calls to insist on rated insurers “for a number of very valid reasons.
“The most valid of these was always the fact that we understood the protections offered to clients were the same, regardless of who their solicitor was insured with. Recent events however have made us look again at this issue to ensure that clients are protected.
“And we have been told that there may be inconsistencies, so we are proposing on insisting on a rating for insurers on the participating list."
