Publishers for Local Law Societies and Barristers in the North West, Lancashire

Indemnity Insurance costs force firms to close

Less than one month since the deadline for renewal of solicitors professional indemnity insurace, at least two firms in Manchester have closed down unable to find insurance cover.

Both small firms, one specialising in conveyancing and the other a general practice, which included some conveyancing, were, according to sources, unable to find the fees to join the ARP.

Other firms have faced similar difficulty in finding insurance and the Law Society has warned there could be an increase in the number of firms requiring cover in the Assigned Risk Pool (ARP), which provides emergency PII for a maximum of two years in any five for firms unable to buy cover in the conventional market.

In anticipation of the increase, the Law Society wrote to the Solicitors Regulation Authority (SRA) raising a number of questions in relation to the SRAs ongoing operation of the ARP.

Des Hudson says: "We have enquired as to whether or not the SRA might consider reviewing the premium rate for entry into the ARP to reflect the circumstances for which some firms will be forced into the pool.”

Nigel Day, Law Society Council Member for Manchester and Chair of an informal committee at the Law Society currently looking into indemnity insurance told The Messenger that at the moment there is not a clear picture of how many firms have been affected, and the final figures on firms entering the ARP wont be known until November. Nigel said that the premiums for the ARP were now beyond the means of some firms and that certain types of firms were more likley to end up in the ARP, mainly small firms, specialising in conveyancing and also immigration work.

He adds "This is a cause for concern, the ARP was not designed for what it now has to do -  the situation is far from satisfactory. We wont know the full extent of the fallout of firms until the fees start to come in for the Practising Certificate.”

If a firm applies for an ARP policy after the commencement of the indemnity period, ie after 1 October 2009, it will be a Firm in Default and will be liable to pay an ARP Default Premium rather than the normal ARP Premium. The ARP Default Premium is an amount equal to the ARP premium plus an additional charge of 20 per cent of the amount concerned - ie the ARP Default Premium equates to 120 per cent of the standard ARP Premium.

Firms in the ARP can continue to look for cover on the open market and until 30 November insurers can back date the cover to 1 October although they are not obliged to.From 1 December 2009 they can still backdate cover, but only up to 30 days.In these circumstances, if a firm is able to secure cover in the market but with an inception date after the 1 October 2009 then the firm will need to effect an ARP policy for the period from 1 October 2009 to the start of the market policy.

If a firm that has made a protective application to the ARP subsequently secures qualifying insurance in the market backdated to 1 October 2009, then any ARP premium paid will be refunded. If the firm had elected to pay by instalments using the credit facility provided by Premium Credit then the Firm would receive back the ARP premium instalment payments made but not the finance charges, which are levied at an annual flat rate of 4.9 per cent.

The Law Society has said that in some cases insurers are quoting premiums which are at least 300 per cent higher than the firms PII costs last year despite no change in circumstance for the firm.

Law Society chief executive Des Hudson added:"It has become apparent that some firms are struggling to get affordable cover or any cover at all in certain cases. We are seeing instances of unjustified inflated quotes compared to last year, as well as what appear to be questionable practices in imposing unreasonably short deadlines to accept an offer, for example, some insurers are giving solicitors just 24 hours to accept their quote.

Julia Baskerville

21st October 2009