Solicitors Told PI Cover Unsustainable

The insurance industry has warned that professional indemnity insurance cover for solicitors could become unsustainable if underwriters are not allowed to cancel policies where the premium is not paid.

The International Underwriting Association has set out a series of major concerns in an open letter to the Solicitors Regulation Authority (SRA) which highlights the restrictions that are currently in place via the minimum terms and conditions  (MTC) agreement between the SRA and the industry.

The letter, from Chris Jones, Director of Legal and Market Services, at the IUA calls for a right to cancel cover if premiums are not met, particularly for run-off cover, and the payment of excesses on a policy to be mandatory.

“Over the last few months, the International Underwriting Association (IUA) have been engaged with the Solicitors Regulation Authority (SRA) on the increasing concerns held by Insurers on the non-payment of premium and policy excesses and the availability of continued, non-cancellable cover, including for Extended Policy Periods and, where applicable, six years run-off cover. These issues are addressed in the SRA Minimum Terms and Conditions (MTC), which are periodically negotiated with insurers,” the letter stated.  “The purpose of this open letter is to flag our concern on the limited progress made and the potential implications looking ahead to the forthcoming solicitor renewals.”

The letter added the lack of cancellation rights for non-payment of premium or excesses in the MTCs has long been a concern for insurers. “However, it is clear that this will shortly become significantly more problematic due to the deteriorating economic environment,” it stated.

It warned: “The current situation is contrary to established contract and insurance law principles and goes far further than other regulated professions and, indeed, the rules of the Financial Conduct Authority.”

In a clear warning as to the impact this will have at renewals the letter added: “The SRA are undertaking a number of measures to mitigate the non-payment issue in the short term, for example reviewing their supervision and enforcement processes and effective communications with regulated firms. These steps are welcomed but will do little to address the core concerns of Insurers and the likely effect of those concerns at forthcoming renewals.

“So what could we see in those renewals? Though each Insurer will take their own commercial approach, certainly one can expect tighter restrictions on premium payment terms. Moreover, Insurers will likely become more selective in their risk appetite. This may well disproportionately affect smaller conveyancing firms, who generate much lower premium and may be especially impacted by Covid-19 and the lack of ‘high-street’ business. As the vast majority of firms fall within this bracket, the overall impact could be widespread.”

The IUA said without  changes it is likely that insurers will become more selective in the risks they accept and smaller conveyancing firms that generate lower premiums, in particular, could face a restricted choice and higher costs for professional indemnity cover.

Mr Jones explained “Many solicitor firms are facing economic pressures and we have already seen an increase in requests for payment of premiums by instalments.

“Insurers have shown their willingness to work with other professions that are struggling to mitigate the short-term economic effects of Covid-19, but the complete lack of any protection around payment of premium and excesses makes it far more difficult to do this for solicitors.

“It is not proposed that there should be any change in the scope of insurance offered. Our objective is to better manage policies to ensure that solicitors pay for the cover that is being provided to them. This will benefit the market by providing long term confidence in the availability of cover and giving insurers more flexibility to develop bespoke arrangements for their clients.”

Mr Jones stressed the credit risk posed for insurers by a lack of cancellation rights for non-payment of premium, which could lead to the provision of a compulsory 6 years of run-off cover for nil premium, is not seen in any other regulated profession. The current rules are contrary to established contract and insurance law principles. Neither are they required by the Financial Conduct Authority or any other regulators with an enhanced consumer protection focus.

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