Plans to reduce the minimum level of professional indemnity insurance (PII) cover have been scrapped.
According to the Solicitors Regulation Authority (SRA), proposals to remove ‘one-size-fits-all’ rules on PII will no longer go ahead after concerns were raised over their supposed effectiveness.
The proposals, launched last year, would have reduced the minimum level of PII cover from £2 million to £500,000 for most firms, while conveyancing firms would attract a minimum coverage of £1 million to reflect the riskier property market.
At the time, the regulator said the plans would ensure that law firms were “providing the public with appropriate protection”, while enabling them to take out cover appropriate to the level of risk associated with the work carried out.
The SRA argued that reducing the minimum level of cover would reduce costs for small firms working in low-risk environments, such as family law.
The new rules would also supposedly back consumers and law firms by reducing the cost of services and attract new legal businesses into the market.
On consultation, however, solicitors did not agree with the regulator. Many suggested that insurers “might not lower premiums” or firms “might not take the opportunity to lower their cover”, while concerns were raised over increasing levels of cost and complexity associated with multiple layers of insurance.
Commenting on the announcement, Paul Philip, Chief Executive of the SRA, said: “Indemnity insurance is a very significant cost for the sector, so it’s important that we periodically review arrangements, but this is a complex area with no easy answers.
“We need to make sure we are getting the balance right, so that the public is appropriately protected, while not burdening firms, and therefore their clients, with unnecessary costs. Careful, open and extensive consultation was essential.”
He added: “The feedback and market insight we received was invaluable, making it clear that the changes we were proposing were unlikely to deliver benefits for the firms and clients in the foreseeable future. We would like to thank everyone who responded and helped inform our thinking.”