Impact Assessment

Full Equality Impact Assessment (EIA) Review of the Assigned Risks Pool April 2010

Publication date: April 2010

Refer to the inital review.

Introduction

1
We have been reviewing the future of the Assigned Risks Pool (ARP), the system under which solicitors who are unable to obtain indemnity insurance cover on the open market are given temporary cover for up to two years to obtain cover back in the open market.
2
Following some early consultation with stakeholders we launched a public consultation exercise in November 2009 and published our initial equality impact assessment in 27 January 2010.
3
The findings indicated that a full impact assessment would be required before a decision was made about the future of the ARP.
4
The SRA Board was asked to make a provisional decision about the ARP at its meeting on 16 March 2010. A draft full equality impact assessment was prepared and submitted to the SRA Board for its meeting together with a verbal report on the comments received from key stakeholder groups who had been given an opportunity to comment on the draft.
5
The assessment could not be finalised as further information was awaited, including some outstanding data for analysis and the key findings from a report commissioned by the Law Society into the profession's experience of the professional indemnity insurance market over the latest renewal period.
6
The SRA Board was concerned about the potential adverse impact highlighted by the draft equality impact assessment and decided to postpone its final decision until the next meeting on 4 May 2010, when the final full assessment would be ready.
7
The additional data has now been obtained and this full equality impact assessment is now complete.

Background

8
Professional indemnity insurance for solicitors in private practice has been compulsory since 1976. Its primary purpose is to provide financial protection to clients in circumstances where they have suffered a loss due to the acts or omissions of their solicitors.
9
The current market-based compulsory professional indemnity insurance scheme was introduced in 2000. It is a scheme which provides a high degree of protection to the public and profession at a comparatively low cost overall. Public protection is provided by having very broad coverage, no limit on the number of claims, and a minimum sum insured. Insurers cannot avoid a claim or cancel a policy because of alleged misrepresentation or non-disclosure by a firm, for example in a proposal form.
10
To join the professional indemnity insurance market for solicitors, 'qualifying insurers' are required to sign up to an agreement, under which they agree to issue policies that comply with the minimum terms and conditions set out in the Solicitors' Indemnity Insurance Rules and to participate in the ARP. The ARP is managed by Capita Commercial Insurance Services Limited, who was appointed by the SRA following a tender exercise.
11
The ARP is an integral part of the current scheme and is underwritten by all the qualifying insurers to provide insurance for those firms that have been unable to obtain cover in the open market. Although there is discretion to extend this two year period for an ARP firm, this is used only in exceptional circumstances, and has been granted only twice since the scheme started in 2000.
12
All firms are eligible to be in the ARP, subject to the two year limit and a requirement in relation to payment of the premiums due. Premiums to the pool are set through a prescribed sliding scale up to 27.5% of gross fees for the smallest firms.
13
The number of firms in the ARP has increased dramatically in recent years - from 28 in 2007/08 to 166 in 2008/09. The total number for 2009/10 at one point was almost 10 times what it was in 2007/08, but the figure for the current year that we have used for the purpose of this report is 241, which was the total number of firms in the pool at 2 February 2010.
14
The dramatic increase in the size and cost of the ARP has put a lot of pressure on the scheme and prompted by concerns expressed by both the Law Society, on behalf of the profession, and the qualifying insurers, the SRA decided to review the future of the ARP.
15
Before formulating the proposals that went out for consultation, we had meetings with key stakeholders and it was agreed by all that there was a need to look at the issues. More detail about the particular concerns of each of the stakeholder groups is set out below.

Aims and objectives of the policy review

16
It was apparent that the dramatic increase in the size and consequently the cost of the ARP, was putting the scheme under stress and steps needed to be taken to alleviate the pressure.
17
The aim of the policy review has been to identify what action may be necessary to ensure that we could achieve the twin objectives of:
- preserving a system of sound financial protection for clients
- maintaining a sustainable competitive market for solicitors' compulsory professional indemnity insurance.

The proposals put forward as part of the review

18
The SRA proposed three possible options that could be adopted which form the basis of this EIA.
19
Proposal 1 was to wind down the ARP, by issuing no new ARP policies with effect from the beginning of the next renewal date (1 October 2010) except to those firms currently in the ARP who were eligible for a second year.
20
This would mean that any firm which could not obtain insurance on the open market, after a short period of grace following the renewal date, would have to close. The firm's last insurer would be required to provide run-off cover for any claims made for the next six years.
21
Proposal 2 was to retain the ARP, but new firms which had not previously been issued with professional indemnity insurance on the open market would not be eligible to join from the beginning of the next renewal period.
22
Proposal 3 was to reduce the maximum period a firm can be in the ARP from 24 months to 12 months (although this would not apply to firms currently in the ARP which would otherwise be eligible to stay in the ARP for a second year).

Key stakeholders

23
In addition to the Law Society, with whom we have been working closely on this review, the key stakeholders who will be affected by the proposed policy changes are as follows:

Solicitors firms, including incorporated practices and LLPs

24
From the profession's point of view there is concern on the one hand that the costs of the ARP are being passed on to the profession through higher open market premiums. On the other hand, there is concern about the consequences of removing the safety net for firms which are struggling in the current economic climate and are facing difficulty getting insurance on the open market.

Consumers of legal services

25
There is concern that consumers will be affected because more failing firms are able to continue practicing by virtue of the ARP. This may have an adverse effect on the quality of service they receive and any increase in the cost of professional indemnity insurance may ultimately be passed on to consumers in the form of higher legal fees.

Qualifying Insurers and brokers

26
Qualifying insurers and brokers are clearly concerned about the cost of the ARP and their exposure because of the number of high-risk firms continuing to practise in the ARP.

The SRA

27
The SRA itself will be affected, in particular by any decision to close the ARP, as a large number of firms would need to be closed or intervened within a short time frame which will put considerable strain on already stretched resources.

A summary of the data that we have analysed

28
A summary of the data that we have used to inform this full impact assessment is set out under the headings below. In the subsequent section, we have considered the impact of each of the proposals put forward using this data.

(a) Statistical data about the ARP cost and the cost of claims made

29
A set of tables was provided with the consultation document (at annexes 1 to 4 to that document) indicating the rapidly increasing costs of the ARP in recent years.

(b) Statistical data about the firms that are in the ARP

Data about the current ARP firms

30
Although none of the proposals will affect firms currently in the ARP, we felt it would nevertheless assist us to look at how the proposals might affect them, as the profile of firms for the following year is likely to be quite similar.
31
The number of firms currently in the ARP can change from day to day as firms may join the ARP during the year or may leave the ARP, for example because they have closed down. The data that we have used is based on the 241 firms that were in the ARP as at 2 February 2010.
32
As the ARP is managed by Capita, they hold the principal data set, although we have supplemented this data, for example by providing the ethnic, gender and age classifications for the ARP firms.

A firm's diversity classification is based on the age, ethnicity or gender of the firm's practicing certificate holders. Where more than 50% are of one group, the firm is classed as that group. Where no group accounts for more than 50% of the total, the firm is classed as having "No Majority Group".
33
We have not yet been able to supplement this data set with any new data obtained following the SRA's recent Diversity Census, as we are still collating that new data and inputting it into our systems. Therefore, we have not been able to breakdown the data by religion or belief disability, or sexual orientation.
34
The data we collated for the draft full equality impact assessment is set out at Appendices 1 to 4. In addition, we have collected further data to help us better understand the potential impact of proposals 2 and 3. This data is set out in Appendix 8 and Appendix 9.

Data provided with the consultation document

35
We provided data with the consultation document (at annex 8) which illustrated the disproportionate number of BME firms in the ARP going back to the indemnity year 2006/07.
36
We have not reproduced that table in this document, but it is important to note that the disproportionality has increased as follows:
- There were proportionally more BME firms in the ARP for over 60 days in 06/07 - 23% as compared to their proportion in the population as a whole (9%);
- The position in 07/08 was similar - 20% in the ARP as compared to 10% in the population as a whole;
- The BME proportion in the ARP grew further in 08/09 - 28% as compared to 10% of the population as a whole.
37
The trend has continued into the current year - the data at Appendix 1 sets out the equality breakdown of ARP firms for the current year (as at 2 February 2010). This shows BME firms account for 41% of the ARP population, but 11% of the overall firm population, which shows a dramatic increase from 06/07.
38
We provided additional data in annex 5 of the consultation document, which set out a breakdown of the firms in the ARP by the number of partners. It was clear that consistently over the past few years, over 90% of firms in the ARP are 1 and 2 partner firms:
- 94% in 2006/07 (of which 72% were sole practitioners)
- 96% in 2007/08 (of which 79% were sole practitioners)
- 91% in 2008/09 (of which 59% were sole practitioners)
39
We know that BME firms are overrepresented among sole practitioners and 2 partner firms, but this does not fully explain the extent of the disproportionality for BME firms in the ARP. BME firms make up 14% of all 1 and 2 partner firms, but 3% of all firms of 3 partners or more.

Data analysis commissioned by the SRA from Marsh

40
For the purpose of this policy review and impact assessment, we commissioned some further analysis of the current ARP firms from the insurance brokers, Marsh. They used the same data set, but considered the data as at 26 January 2010, when there were 238 firms in the ARP which explains the slight differences in the numbers used. There is otherwise no difference in the overall conclusions drawn from the analysis.
41
The Marsh report is set out in full at Appendix 5 and provides information about the characteristics of ARP firms generally and also compares BME firms with non BME firms across a range of characteristics.

(c) Survey of current ARP firms

42
We contacted all the ARP firms by email or letter in mid January 2010 and as well as encouraging them to respond to the consultation, asked them a number of additional questions.
43
After sending a reminder, we had only 11 responses at the closure of the consultation on 12 February 2010. We were disappointed with the response but accept that the firms had limited time to respond and may instead have spent time responding to the full consultation paper.
44
A copy of the questions and our findings from the survey are set out in Appendix 6.

(d) Consultation outcome

45
The SRA published its consultation document on 19 November 2009 setting out the proposals for the ARP and invited responses by 12 February 2010. A report summarising the outcome of the consultation is published on the SRA website.
46
It is clear from the summary, that there was considerable concern about the impact that the proposals would have on small firms, sole practitioners and BME firms and these concerns were expressed in and reflected across many of the consultation question responses.
47
For the purpose of this impact assessment we have considered in detail the response given to question 7 in the consultation document, which asked 'What equality and diversity impacts do you believe the proposed changes will have?'
48
There were 130 responses to this question, of which 68 felt there was some impact 44 felt there was no impact and 18 made no comment.
49
Almost all of the respondents who thought there was some impact on equality and diversity, made reference to the impact there would be on small firms and sole principals which would directly affect BME solicitors. Some of the key issues raised are listed below:
- Many BME firms face difficulty obtaining professional indemnity insurance and there was a strong suspicion by many respondents that racial discrimination was operating against BME solicitors in the market
- There would be a reduction in the diversity of firms operating in the profession
- Clients would suffer from a reduced choice of solicitor and this could impede access to justice
50
A few stakeholders raised concerns about the potential impact on equality for other groups such as:
- Small firms/ high street firms/ new firms/ and firms where the fee earners are working part time and /or earning less
- Women, who generally earn less than their male counterparts
- two respondents referred to the possible differential impact on solicitors working in different parts of England and Wales given the regional variation in the level of fee income
- one respondent felt that the proposal would lead to age discrimination.
51
There were 10 respondents who commented that the ability of a firm to obtain market insurance was based on their competence and track record, rather than their ethnicity.

(e) Ongoing engagement with particular stakeholder groups

52
We met with some of our key stakeholders, to better understand their concerns and the impact on equality both before the proposals went out for public consultation and since.
53
Reference will be made to the views and concerns expressed by these stakeholders in the context of each of the proposals, but there was a series of meetings and/or discussions held with the following groups:
- The Law Society, including the Law Society's Equality and Diversity Committee and BME Forum
- Qualifying insurers
- BME solicitor representation groups
- Lawyers with Disabilities Division
- The Sole Practitioners Group.
We held had meetings in October and December 2009 attended by representatives from: the Sole Practitioners Group, the Lawyers with Disabilities Division, the Black Solicitor's Network, the British Nigeria Law Forum and in February 2010 with the BME Forum members.
54
The initial equality impact assessment indicated potential adverse impact on BME solicitors, sole practitioners and small firms, so we were particularly concerned to ensure that the solicitor representative groups had the opportunity to consider the evidence we gathered for the full equality impact assessment before a final decision was made by the SRA Board. The draft full equality impact assessment was circulated to the Law Society and a number of solicitor representative groups a week
55
Comments were received in response from a number of the representative groups - all of them emphasised their opposition to closure of the ARP and the BME groups in particular remained very concerned about the potential adverse impact of proposals 2 and 3. The comments will be addressed in more detail below.

(f) Research into the experience of solicitors' firms during the professional indemnity insurance renewal period for 2009/10

56
The Law Society commissioned market research company Moulton Hall to examine the experiences of solicitors' firms applying for professional indemnity insurance in 2009/10. This followed a number of reports to the Law Society from solicitors' firms which had experienced some difficulty in obtaining insurance.
57
The Law Society has given permission for the SRA to use the data in our assessment, although we are not able to append the report to this document as it is not yet published. The findings are of particular interest for this equality impact assessment as it is clear that BME firms were less likely to receive an offer compared to white firms (73% compared to 84%). The report suggests that the figures may be explained by the different characteristics of firms applying for insurance. For example, firms doing immigration work, high street firms and firms based in Greater London were more likely to be refused cover. BME firms were over represented among firms with these characteristics and therefore were more likely to be refused cover. The report concludes 'while there were some differences in the renewal experiences of black and minority ethnic firms and wider profession firms, it is difficult to explain these differences given the diverse risk profiles of these firms, the small sample sizes and a lack of understanding of the actuarial models used by insurers to assess firms' insurance risk'. The findings are consistent with much of the anecdotal evidence we received from individual BME firms, who believed they had been discriminated against in the professional indemnity insurance market.
58
In the context of this equality impact assessment, we must consider whether our proposals will have the potential to cause indirect racial discrimination contrary to the Race Relations Act 1976. For the reasons explained in detail below, we have not found that our proposed action in relation to the ARP is likely to cause unlawful indirect racial discrimination. However, we are very concerned about the overall findings of the report and hope to work closely with the qualifying insurers to better understand how they make their decisions in this area of the insurance market. We have started this work already, contacting the qualified insurers with some initial questions about their approach to equality.

(g) Information received from the qualifying insurers

59
As the Law Society's research has not yet been published, we were unable to put the report findings to the qualifying insurers in our first approach. Instead we wrote to all 27 qualifying insurers, explaining our equality duties and the particular context of the equality impact assessment that we were conducting and asked them the following questions:
- 1
  Do you have an equality policy that applies to your customers and/or your employees (please provide a copy)?
- 2
  What procedures do you have to demonstrate that you are not indirectly discriminating on racial grounds against customers or potential customers in the way that you assess their requests for professional indemnity insurance?
- 3
  Have you ever had any complaint made to you by a solicitor customer or potential customer alleging racial discrimination (or any other discrimination) and if so could you provide the following details:
  - (a)
    how many complaints alleged racial discrimination
  - (b)
    when were they received
  - (c)
    what was the outcome
  - (d)
    what action, if any, have you taken as a result?
60
A copy of the letter was sent to the Association of British Insurers (ABI). A summary of the responses from individual qualifying insurers has been set out in Appendix 10. A copy of the ABI's response is attached at Appendix 11. It is clear that most of the nine firms which have responded are aware of the need for equality in relation to their employees, and are seeking to comply with the guidance and standards issued by their regulator, the Financial Services Agency (FSA) in relation to the fair treatment of customers. It is encouraging that there are only two of the nine firms indicating that they have received discrimination complaints. However, we feel that there is much more work that we can do with the insurers, in consultation with the FSA, to promote better awareness of equality for customers and a deeper understanding of how to guard against discrimination.
61
We have advised the insurers that we will be setting up a forum for representatives of BME firms, the SRA and the insurers to discuss the issues of concern for the benefit of all concerned. We are pleased to note the ABI's support for this approach.

(h) Further information about the new firms created in 2009 which went straight into the ARP

62
In our draft full impact assessment we had identified potential adverse impact on new BME firms from proposal 2, to close the ARP to new firms. At their meeting on 16 March 2010, the SRA Board noted the comments made by the equality groups and was concerned about this. As a result, for the final full assessment we have looked beyond the statistics to get a better idea of the profile of these new firms and to understand why they were unable to obtain insurance on the market.
63
We requested the following further information from Capita in relation to all the firms created in the calendar years 2008 and 2009:
- the number of partners and location of each firm
- the type of work that they are doing
- the reasons why they were not given insurance on the open market.
64
This evidence is not attached to this report as it included confidential information for the firms by name and we did not wish to risk identifying any of the firms concerned.
65
Capita provided the information for all but 7 of the 41 firms created in 2009 which went straight into the ARP and it is clear from the data that:
- All of those for whom Capita hold the information are sole practitioners or 2 partner firms
- 16 are from London or Essex
- Of the 18 firms for whom Capita hold information about the type of work undertaken, 11 of them state that they do immigration work, 9 do matrimonial or child care, and 5 do conveyancing
- There is little clear information from the firms about why they were unable to obtain insurance on the market.
66
For the 18 new firms created in 2008 which went straight into the ARP, the picture is not dissimilar:
- All are sole practitioners or 2 partner firms
- 8 are from London or Essex
- Of the 9 firms for whom Capita hold information about the type of work undertaken, 7 do immigration work, 2 do matrimonial, and 6 do conveyancing
- There was little clear information from the firms about why they were unable to obtain insurance on the market.
67
The picture for new firms appears to be similar to the picture for all firms (see the Marsh report at Appendix 5) in that there are certain characteristics of firm which seem to lessen the likelihood that they will be able to secure insurance on the market, namely the type of work undertaken (typically immigration, residential conveyancing and matrimonial), size and location in the London area.
68
In the next sections we have considered the impact of each of the proposals first on race equality, then on age equality as these were the groups where there were the most significant findings. We have then addressed the impact in relation to gender equality and the other equality strands.

Impact of the policy proposals on race equality

Proposal 1 closure of the ARP

69
As indicated in the initial impact assessment we found that this proposal is likely to have an indirect adverse impact on race equality.
70
In considering the extent of the impact on relevant stakeholders, we identified three different ways in which proposal 1 may impact adversely on race equality.

Sole practitioners and small firms, many of which are BME firms will have to close if they cannot get insurance on the open market

71
Statistical evidence shows that the impact of closing the ARP is likely to disproportionately affect BME firms who are overrepresented in the ARP (Appendix 1). BME firms currently make up 41 % of the firms in ARP (99 firms) although they only make up 11% of the overall population.
72
The consequences of closing the ARP would be to force all firms unable to obtain professional indemnity insurance on the open market to close, either through intervention by the SRA or voluntary closure by the firms themselves.

The availability and cost of professional indemnity insurance is likely to be adversely affected for sole practitioners and small firms

73
Many of those responding to the consultation felt that if the ARP was closed, there would be a reduction in the number of qualified insurers who are prepared to offer insurance to small firms and an increase in premiums. This view was offered by insurers themselves as well as other stakeholders further details can be seen in the consultation outcome report.
74
One of the qualifying insurers which offers insurance for small firms made this point and emphasised that the ARP was essential in ensuring that the risk was spread among all qualifying insurers. The Sole Practitioner's Group had the same concerns:

'The absence of the ARP may well have the effect of driving some insurers of small firms out of the market altogether, so decreasing competition, and making it much more difficult for sole practitioners and small firms to obtain qualifying insurance at any price. This cannot be good for the profession, the public, access to justice and availability of choice in the legal market'.
75
As this would affect sole practitioners and small firms there would be a disproportionate impact on BME firms.

There will be a less diverse range of firms available to provide legal services and this is likely to impede access to justice

76
Taking into account the representations made by many of the BME equality groups with whom we met and who responded to the consultation, we also noted concern that clients were likely to suffer adverse impact as a result of the proposal to close the ARP in that there would be less diversity and fewer sole practitioners and small firms offering legal services to those who need them.
77
We were told, anecdotally, that many small BME firms are likely to be based in or near areas with a high BME population; any significant reduction in such legal services is likely to have an impact on access to justice for such communities.
78
There is some support for this in the Marsh report at Appendix 5 which indicates that the majority of ARP firms are located in the greater London area with the largest concentrations of firms in East and South East London.
79
We also considered some of the arguments that have recently been rehearsed in a report published by the Ministry of Justice 'Justice: a review of existing evidence of the experiences of minority groups based on ethnicity, identity and sexuality' dated May 2009. The report highlights the barriers felt by BME groups in accessing the justice system, the reluctance to seek legal advice, and the limited sources and availability of advice.
80
Similar issues were raised in relation to the proposed changes to the availability of legal aid in 2006/07, with the concern being expressed that BME led firms were best placed to serve these communities.
81
We do not have enough data about the services being offered by the ARP firms to draw any firm conclusions on this point, but we remain concerned about these issues and mindful that our regulatory objectives include:
- Improving access to justice
- Protecting and promoting the interests of consumers
- Encouraging an independent, strong, diverse and effective legal profession.

Considering whether there is justification for proceeding

82
To determine whether we would be justified in proceeding with proposal 1, we have looked in more detail at the current pool of ARP firms to try and establish the reasons why they have been unable to obtain professional indemnity insurance and how many of the firms are essentially good firms that can be 'rehabilitated'.

Identifying the risks posed by the current ARP firms

83
The SRA carries out a risk assessment of all firms which enter the ARP that are not already being dealt with by the SRA. The firms which the SRA are already dealing with will have been risk assessed (using the same procedure) at the commencement of our dealings with them so there is no need to risk assess them a second time at the point when they enter the ARP.
84
To date the SRA has risk assessed 136 ARP firms (those not already being dealt with) for the year 2009/10 of which:
- 77 were classed as low risk;
- 44 were classed as medium risk; and
- 15 were classed as high risk.
85
We have to be cautious about these figures as they represent only the firms which are new to us and not the whole ARP group.
86
Nevertheless, the data (which we have set out in more detail at Appendix 4) does show that a significant number of these ARP firms are low risk. We have determined that there is no statistically significant difference between the risk scores for the BME firms as compared to the scores for the White firms.
87
Other sources of evidence and our anecdotal experience of working with these firms, suggests that the reasons for this are likely to include:
- the current economic climate
- pressures within the professional indemnity insurance market
- other possible factors.

The current economic climate

88
Data from the Marsh report at Appendix 5 indicates that the revenue of the majority of ARP firms is at the lower end of the scale, with the average revenue per partner being 71,000. There is a marked difference between the average revenue per partner for BME firms which is 52,000 and the average revenue per partner for White firms being 171,000.
89
Although we do not expect a significant improvement in the short term, we would expect to see fewer firms in financial difficulty over the coming years as the economic climate improves. We would accept that closing the ARP in the current climate would mean that many firms which are experiencing difficult times would have to close down.

The professional indemnity insurance market

90
The information provided by our BME stakeholder groups, the Sole Practitioners group, our survey of ARP firms and our consultation responses consistently show that there is a great deal of concern among certain sections of the profession about the way their applications for insurance have been handled by the qualifying insurers, in particular for the 2009/10 renewal but also for the previous year.
91
The concerns are summarised below:
- The premiums offered are impossibly high, in some cases higher than the ARP premium itself
- The insurers were using the single renewal date to their advantage in negotiating the quote, providing quotes very late in the day
- Insurers were profiling firms and refusing to insure those doing certain types of work (examples given were: immigration, conveyancing and family). Supporting this, the Marsh report at Appendix 5 indicates that immigration and residential conveyancing were the main work areas of 59% of ARP firms for whom the information was available. This may also cause indirect discrimination against BME firms the Marsh report considered the equality breakdown of firms across the most common work areas of ARP firms. This shows that BME firms were responsible for doing a higher than expected proportion of immigration and landlord and tenant work.
- The insurers were operating in a way that was discriminating against BME firms. These concerns had been raised in an article in the Gazette on 22 October 2009 (at Appendix 7) and in the course of our consultation and engagement with BME groups. Examples given were that:
  - some insurers are looking much deeper into sole practices and small firms, even asking for partner's CVs
  - on the other hand, small firms felt their applications were determined by their profile (work type and other factors) which did not allow them to demonstrate that they had a good track record
  - there are anecdotal stories of firms being refused by postcode or because they have African or Asian sounding names or because of the ethnic makeup of the firm
  - some firms have been refused insurance because they entered the profession through the qualified lawyer transfer scheme i.e. were qualified outside of England and Wales.
92
For this final full equality impact assessment we have also been able to consider the Law Society's research into the experience of solicitors' firms in the professional indemnity insurance market for 2009/10 referred to above as well as the response to the equality questions we put to the qualified insurers.
93
Although the insurers do not accept that they are discriminating against solicitors on the basis of ethnic origin, the evidence suggests that BME firms are facing greater difficulties in the insurance market than white firms but the reasons for this are complex. It is partly explained by the fact that BME firms are overrepresented among sole practitioners and small firms, and partly because they are more likely to have the characteristics of firms which are less likely to get insurance, such as firms doing immigration work, high street firms and firms located in Greater London. The evidence from this comes from firms themselves, the Marsh data and the Law Society research and will need further analysis and discussion with our stakeholders.
94
Whilst we have not got any clear evidence to demonstrate unlawful racial discrimination, we will need to urgently examine what is happening in this sector and why, in conjunction with the FSA. Until these issues can be explained, there are good reasons for retaining the ARP as a safety net and we will be taking this work forward through the forum that we are proposing to set up and following further discussions with the Law Society. For further details, please see the action plan attached at Appendix 13.

Other possible factors

95
There was strong feeling among the profession that was clear from the consultation that the SRA's approach was allowing the insurance industry to regulate solicitors by default. Some of the insurers agreed and were equally concerned about being put in this position.
96
Many of the insurers felt that the strain on the insurance system for solicitors was not caused by any intrinsic problem with the ARP itself but by the SRA not having acted quickly or efficiently enough to close down failing firms.
97
We have also considered the disproportionate representation of BME solicitors across many of the SRA's regulatory activities which is set out in our latest annual report. As insurers are likely to be influenced by the firm's regulatory record as well as a firm's claims history, this will inevitably be one of the factors which may explain why there is also disproportionality in relation to BME firms in the ARP.
98
We are seeking to understand the reasons for the disproportionality that has been identified in our overall regulatory activity and have commissioned research to look at these issues. The preliminary findings have been published but further work is needed before we have a better understanding of the causes.
99
We are currently working on proposals for a radical overhaul of the way that we regulate the profession. We will be moving to an approach that will focus on outcomes - working collaboratively with firms, allowing them to work more flexibly to deliver legal services in ways that achieves the expected outcomes. We will be launching a consultation document setting out what these proposed changes will involve in April and May 2010.
100
We will be considering the equality impact of this change in detail and will be seeking to ensure that we are better able to regulate the profession and focus our resources on the areas of work and the firms which pose the greatest risk. Although this work is planned for the longer term (for introduction by October 2011) it will represent a radical response to some of the criticisms levelled at us by the qualifying insurers and others.
101
We have already been working to improve our regulation of firms in the ARP in the immediate future, for example through the approach that was developed and introduced for this year to better assess the risks for ARP firms. We now have a more flexible approach to the ARP firms than we did in 2008/9, aiming to ensure that each firm has a response which is appropriate to the risks posed. For low risk firms, we will be combining desk based monitoring and visits from our Practice Standards Unit, which has been shown to be an effective way to help firms get back into the open market. Given the current economic climate, the SRA has also decided to waive the fee usually payable for more formal regulatory visits to ARP firms.

For further details about this new approach see the paper put to the SRA's Compliance Committee on 2 February

Conclusions on the race equality impact of proposal 1

102
On the evidence that we have considered in relation to the likely adverse impact on race equality for sole practitioners and small firms, on BME firms and on consumers of legal services, the SRA would not be justified in closing the ARP.
103
The adverse impact would be severe and would affect a sizeable number of BME solicitors firms. The SRA is mindful of the concerns expressed by BME and other stakeholders on the impact of closure.
104
In deciding that the SRA would not be justified in closing the ARP we considered the fact that there are several reasons for the significant increase in the number of ARP firms, many of which are outside the control of the firms concerned. We are satisfied that there are a significant number of firms in the ARP which are low risk and can survive with short term support. The economic climate has put a great deal of pressure on the profession and insurers alike and to remove the safety net provided by the ARP at this stage would not be justified.
105
However, it is clear that the pressure on the scheme is such that some remedial action is necessary - we consider that the alternative proposals (2 and/or 3) that have been put forward would contribute to the aims and objectives of this review with less adverse impact. In the next two sections we have considered the nature of the impact of proposals 2 and/or 3 on race equality and whether this can be justified.

Proposal 2 no entry to the ARP for new firms

106
We have considered the race equality impact of proposal 2, which would have the effect of closing the ARP to all new firms which have not previously been able to secure market insurance.
107
We looked at new firms in the ARP i.e. firms that have been recognised by the SRA during the calendar year 2009 but have not been able to obtain market insurance since start up.¹² We compared these firms with the overall breakdown of new firms opening for the same period.

Whilst the Code of Conduct (at Rule 14) does set out requirements for recognition of a new firm, these relate more to the composition and structure of the firm rather than the viability of the business
108
This data is set out at Appendix 2 and shows that of the 171 new BME firms created in calendar year 2009, 157 obtained market insurance and 14 went straight into the ARP. This compares with the white group, where 888 new firms were created of which 877 obtained market insurance and 11 went straight into the ARP.
109
Although the numbers are very small, the disproportionality can be seen in percentage terms, just over 8% of all BME new firms but only just over 1% of all white new firms end up in the ARP.
110
There is clear disproportionality here, although based on the current ARP firms the impact of proposal 2 would affect significantly fewer firms (14) than the impact of proposal 1 (99).
111
Since the draft EIA was submitted to the Board we have looked at the data for the calendar year 2008 to identify whether there was a different picture in relation to the position of new firms. The data for 2008 is set out at Appendix 8 and the position is similar, in that 6 of the 186 new BME firms (3%) created in 2008 went straight into the ARP whereas only 3 of the 715 new White firms (less than 1%) went straight into the ARP.
112
The difference in the two groups is slightly less stark than 2009, but nevertheless does indicate that there would have been a disproportionate impact on BME firms if proposal 2 had been applied to firms created in 2008. However, the numbers in 2008 were even smaller and the impact would have been felt by only a total of 6 new BME firms.
113
There was support for proposal 2 from many of those responding to the consultation although the BME groups were opposed to the proposal, largely because the difficulties that face existing BME firms in the insurance market would apply equally to new BME firms.
114
Some of the comments received from equality groups highlighted particular concerns, for example the Society of Asian Lawyers referred to the difficulties faced by many BME solicitors in progressing their careers as employees in larger firms, and setting up their own business was seen by many as the only opportunity for career advancement. The Black Solicitors Network raised the point that if the SRA has recognised a new firm as fit to open, then it would be wrong to let the insurance industry determine whether the firm could actually practise and the ARP should be open to new firms to allow them time to prove their ability to survive.
115
These are valid points which should be addressed, but not necessarily by keeping the ARP open to new firms. There is a need for more information and support for those contemplating a new firm start up and the SRA should consider whether the criteria for recognition of a new firm should include some consideration of the firm's business plan and financial viability.

Conclusions on the race equality impact of proposal 2

116
On the evidence considered, we have identified a potential adverse impact on race equality, as new BME firms appear to have a much greater likelihood of ending up in the ARP than new white firms and this has proved to be the case for 2008 and 2009.
117
We have considered the overall aims and objectives of the review, namely to protect clients and sustain the market based system for compulsory professional indemnity insurance and accepted that there is a need for the ARP to be controlled in some way to ensure the scheme's survival.
118
We accept there are pressures in the market at the current time which provides a different context to the ARP review than when the consultation document was first issued in November 2009, not least as a result of the difficulties being experienced by Quinn (which provides insurance for nearly 3000 sole practitioners and small firms). We also accept that closing the ARP to new firms will not provide the full solution. However, we remain of the view that we do need to reform the ARP to improve confidence in the scheme, both from the insurers, the profession as a whole and ultimately to ensure that the scheme is sustainable for the benefit of consumers.
119
We have considered the fact that there is support from the insurers, the Sole Practitioners Group and the Law Society for proposal 2 (although the Law Society suggested that the change should be implemented from 2011 rather than 2010). Against this we have considered the concerns of the BME groups representing the profession and the evidence which does suggest that there will be adverse impact for new BME firms.
120
We have taken into account the very small number of new BME firms who might be affected, and believe that the potential impact on such firms can be minimised through effective measures that the SRA and the Law Society could put into place.
121
It is a fine balance to make and on the basis that these measures are put in place, the SRA would be justified in proceeding with proposal 2.
122
The measures that we would recommend are:
- more support for new firms at risk of entering the ARP, such as events and seminars run by the Law Society on running a business. We have been advised that the Law Society is running a regional series of free events between mid May and the end of June on "Preparing for PII renewal "- which gives tips on risk management and preparing effectively to engage with the professional indemnity insurance renewals process. The Law Society also has a round of seminars planned from June to October for existing firms and new start ups covering a range of areas including "Getting the best from IT", "Finance and your business", "ABSs and regulation" and "Merge, consolidate, diversify and succession planning";
- more support for the Sole Practitioners Group to promote the guidance that they can offer (through the Professional Ethics helpline and perhaps some specific seminars and events);
- investigating whether there is a further role for the SRA in the provision of guidance material aimed at new firms.
123
It was also suggested by some respondents that the SRA might consider whether the criteria for new firms are stringent enough. Further work would be necessary to consider if and how it would be possible to ensure that new firms were better prepared to enter the legal services market. The SRA is reviewing the criteria for recognising firms and alternative business structures in time for October 2011 and will be considering whether the criteria should include consideration of the viability of the firm as a business.

Proposal 3 reduction of the time for being in the ARP from 24 months to 12 months

124
In considering the race equality impact of this proposal we first looked at the breakdown of firms in the ARP on 2 February 2010 and identified those who were in their first ARP year and firms in their second ARP year (see Appendix 3). There are 190 firms in their first year (41% BME and 19% White) There are 51 firms in their second year (41% BME and 25% White). No statistically significant difference was found in the data when considering the ethnic breakdown of the year 1 group as compared to the year 2 group. From this we concluded in the draft full EIA, that BME firms are no more likely to end up staying in the ARP for a second year than White firms.

As with other statistical significance tests, this is at 95% confidence level.
125
For the final full EIA we have been able to look further at what was happening to firms at the conclusion of their first year in the ARP the 'rehabilitation rate' that we referred to in the draft report.
126
As the current insurance year is not yet concluded, we will not yet know what will happen to the current ARP firms. Therefore, we have considered what happened to the firms in the ARP during 2008/09 - the data is now provided at Appendix 9. This new data provides a more reliable picture of whether one group is more likely to be in the ARP for a second year than another group. This data has given us much better evidence upon which to base our equality impact assessment for proposal 3 and the reasons for this are explained below.
127
The tables at Appendix 9 show that there were 159 firms in their first year of the ARP for the period 08/09. We checked the status of these firms as at 2 February 2010. Of these 159 firms:
- 70 had ceased trading
- 28 had obtained market insurance and were trading
- 60 had gone into the ARP again (for their second and final year)
- 1 currently not known.
128
Of the firms that went into their second ARP year, 43% are BME (26 of the 60) and 28% are White (17 of the 60).¹⁴

This ties in with the figures set out in Appendix 3 which shows the firms in the ARP as at 2 February 2010, broken down as year 1 firms and year 2 firms. The data at Appendix 9 shows the firms entering the ARP for their second year at the start of the 09 /10 year and this corresponds with the year 2 group in Appendix 3. The reason that there is a difference in the total number (60 firms shown as going in the ARP for their second year 09/10 and 51 shown as being in the year 2 group for 09/10) is because 11 firms joined the ARP during the 08/09 year and at the point when the 09/10 data was captured (2 February 2010) these firms had not yet been in the ARP for a full 365 days. These 11 firms will, therefore, be reflected in the year 1 column, rather than the year 2 column.
129
Of the firms that managed to get insurance, 43% (12 of 28) are BME and 29% (8 of 28) are white.
130
Of the firms that ceased trading, 23% (16 of 70) are BME and 43% (30 of 70) are white.
131
It can be seen that the BME group were more likely to be 'rehabilitated' i.e. emerge from the ARP with market insurance. The tables on the right hand side of Appendix 9 show that 22% of the BME firms got insurance but only 14% of the white group. Similarly, 54% of the white group ceased trading as compared to 30% of the BME group.
132
However, the data also shows that a higher proportion of the BME group went into the ARP for their second year - 48% (26 firms of 54) as compared to the 30% of the white group (17 firms of 56).
133
This new data indicates that in fact there is a statistically significant difference in the data for firms going into a second year based on ethnicity when the BME and white groups are compared. On the basis of this new evidence, we have identified a potential disproportionate impact on BME firms that could arise if proposal 3 is implemented.
134
Whilst this is in contrast to the conclusions drawn from the original data, it is more reliable because it is based solely on those firms which had the opportunity to go into the ARP for a second year. The original data was a snapshot of the ARP firms and did not make allowances for whether a firm even had the opportunity to be in the ARP for a second year. Additionally, there were more BME firms entering the ARP in 09/10 than white so this skewed the original figures.
135
On a more positive note, the new evidence also supports the conclusion that the ARP is providing a benefit to a sizeable number of firms as 18% of all the ARP firms from 08/09 have managed to get market insurance and continue to trade. This supports our conclusions in relation to proposal 1, that it is not appropriate to withdraw the ARP totally at this time. However, we would also need to track these firms for a few years as there may be some firms which obtain market insurance but nevertheless continue to experience problems and have to close or are intervened during that first year back in the market or possibly the year after.
136
Looking at the views of those who responded to the consultation paper, there was a fairly equal split between those respondents who agreed to proposal 3 (54) and those who did not (58).
137
The Sole Practitioners group agreed with the proposal, commenting that the management of firms in the ARP would therefore need to be 'rigorous' with risk assessment taking place in the first month if possible. Many of the insurers agreed but the BME groups were largely opposed to proposal 3.
138
Many respondents who agreed to the reduction, felt that if proposal 3 was accepted, there should be discretion to extend the period up to a maximum of 24 months for 'deserving' firms, based on clear and objective criteria.
139
We have considered this further and feel this is the most appropriate way to militate against the potential adverse impact of proposal 3 so that firms are judged against objective criteria and able to demonstrate on the basis of their own performance, whether they ought to be given the option of entering the ARP for a second successive year.

Conclusions on the race equality impact of proposal 3

140
We have now been able to identify evidence which demonstrates that there is a potential for proposal 3 to have an adverse impact on race equality. BME firms are more likely to choose to enter the ARP for a second year as compared to white firms. 48% of the BME group from the 08/09 ARP (26 firms) went into the ARP for a second year, as compared to the 30% of the White group (17 firms).
141
Although we did not have the benefit of this evidence in the draft report, we were nevertheless cautious about concluding there was no adverse impact on BME firms arising from proposal 3. It seemed appropriate to assume that the difficulties faced by BME firms in the professional indemnity insurance market were likely to come into play whether they were seeking to renew their insurance or whether they were seeking a new policy following a year in the ARP.
142
We have reconsidered all the data, balancing the need to make some amendment to the ARP to ensure that the scheme is sustainable, against the potential adverse impact for race equality that we identified.
143
We have determined that there are several measures that we can take to mitigate the adverse impact for BME firms and if these measures are in place the SRA would be justified in proceeding with proposal 3.
144
The measures are:
- to ensure that firms in the ARP are risk assessed and appropriate action is taken more quickly than is currently the case
- to publish objective criteria for the exercise of discretion as to whether ARP firms should be entitled to stay in the ARP for a second year. Draft criteria are attached at Appendix 12.
145
In relation to the first measure, we have already implemented a new approach to the ARP firms for 09/10 as explained above, and this will help the SRA to tackle the high risk firms more quickly and support the lower risk firms to improve their chances of finding market insurance. We will monitor and review how effective the new process has been.
146
To assist with this, the SRA Board were asked to change the current scheme which allows a firm to withdraw from the ARP for up to 60 days after the indemnity period has begun if they are able to secure indemnity insurance on the open market. Such firms are treated as if they have never been in the ARP. The current system gives little incentive for the SRA even to start risk assessing ARP firms until after 1 December each year, because the firm may secure market insurance and leave the ARP in any event. It is intended that the 60 days 'grace' period is reduced to 30 days so the SRA can start to risk assess the ARP firms earlier and consequently tackle the high risk firms earlier.
147
Although this was not part of the proposals put forward in the consultation document, it was subsequently determined to be a necessary change, in the light of the further evidence that we gathered through the consultation. It was clear that many respondents were concerned that the SRA were not acting quickly enough to either close down high risk firms or support low risk firms to get out of the ARP quickly.
148
Unfortunately there is no reliable way for us to get a breakdown of the firms that have come out of the ARP and when within the 60 day period. They are treated as never having been in the ARP if they do obtain market insurance within the 60 days and the data is not captured. As such we are not able to measure the impact of the proposal to reduce the proposed reduction from 60 to 30 days.
149
We would recommend that this data is captured for the new insurance year and monitored for its impact. Once we have that monitoring data, we will carry out some focused consultation with key stakeholders and review the position in time for the 2011/12 insurance year.

Impact of the policy proposals on age equality

150
In the initial equality impact assessment we identified that there was the potential for proposal 1 to disproportionately impact on solicitors firms in the 31 to 40 group. Whilst firms within this age band make up 11% of the whole population, they make up 20% of the ARP firms.
151
We had no substantive comments from stakeholder groups about the potential impact on age equality, either during the meetings that we held or in the consultation responses.
152
We considered the impact of proposal 2 on the new firms by age group and for new firms created in 2009 new firms within the 31 to 40 group were more likely to fall into the ARP (6%) as compared to the other groups. Figures for new firms created in 2008 indicated that there were some quite small disparities among the age categories, but a significant difference for firms in the 65+ category (14%) but this was based on 7 firms, with only 1 not which went straight into the ARP.
153
In relation to proposal 3, the new data indicated that there was potential adverse impact for the 51 60 age category, and we would need to look in more detail at the reasons behind this.

Conclusions on the age equality impact of the proposals

154
The reasons for the potential adverse impact on equality for the age categories specified above are not clear. We will need more evidence to understand what is causing this but it may be linked to the operation of the insurance market as firms led by younger solicitors may be perceived as having less experience and may well be earning less than those run by older solicitors and therefore assessed as higher risk.
155
If the Board decides to proceed with proposals 2 and/or 3, all firms will be able to take advantage of the additional measures that have been recommended.

Impact of the policy proposals on other strands of equality

156
In our initial equality impact assessment, we noted that there was a slight disproportionality for female firms in the ARP. Based on the current ARP firms, 18% of ARP firms are female as compared to 24% in the overall firm population. There is no difference in the proportions for male firms (see Appendix 1).
157
Some of this is likely to be explained by the fact that female firms are over represented in 1 and 2 partner firms and as explained above, this group makes up over 90% of the ARP. (Female firms make up 26% of all 1-2 partner firms, but 20% of all firms with 3 partners or more).
158
As mentioned above, there were a few factors suggested in the consultation responses that may account for the differences identified and these may also be accounted for in the operation of the insurance market. For example, women generally earn less than their male counterparts, are more likely to work part time and both factors could lead them to be considered a higher risk for insurance purposes.
159
We considered the impact of proposal 2 on the new firms by gender and found that there was very little difference in the proportion of new female firms likely to end up in the ARP as compared to new male firms for both 2008 and 2009.
160
In relation to proposal 3, there was little difference in the proportion of male and female firms choosing to go into the ARP for a second year (37% for female firms as compared to 37% for male firms).
161
We had no statistical data and no anecdotal or other evidence to assess the potential impact on the remaining equality grounds, namely disability, sexual orientation and religion or belief.

Conclusions on the other equality grounds

162
We will continue to monitor the ARP for gender equality and for the other equality strands if the outcome of our diversity census provides sufficient data for meaningful analysis.

Impact of the policy proposals on Human Rights

163
We have not identified any aspects of the proposals which would adversely impact on human rights so far as solicitors or consumers of legal advice are concerned.

Conclusions

164
There was a broad consensus among stakeholders, including BME groups that the SRA needed to take some action to ensure that the current scheme was maintained and consumers of legal advice were given adequate financial protection.
165
The conclusion of this final equality impact assessment is that at the current time it would not be justifiable to proceed with proposal 1 and close the ARP because of the potential adverse impact on race equality and to a lesser extent age equality. Although it is a legitimate aim to take action to preserve the market based professional indemnity insurance system for the benefit of consumers and the profession, it was not proportionate to close the ARP altogether to achieve this.
166
However, the desired outcome of the policy review could be achieved by adopting proposal 2, and/or proposal 3. This would be a much more proportionate response as it would potentially affect only a small number of firms and would preserve the ARP, which we have seen in this economic climate is providing an effective safety net for many firms in overcoming short term problems. The evidence has identified potential adverse impact on race equality and to a lesser extent age equality arising from proposals 2 and 3, but with the measures outlined above in place this could be minimised.
167
This assessment has largely focused on race equality as the evidence suggested that this was where the main concerns were. The allegations made and reported in the press about the concerns that some BME solicitors had about unlawful racial discrimination in the insurance market are serious and will need to be addressed. It is recommended that representatives of the BME groups, the qualifying insurers, the SRA, the Law Society and the FSA should work together to address the concerns that have been voiced.

Appendices

Appendix 1: Breakdown of firms in the ARP at 2 February 2010 by age, ethnicity and gender

Based on Capita list of 02/02/2010, less any firms which have since ceased practising or do not have a date in the 'cover from' field Excludes firms in ARP list shown as "Proposed" or "TBA" E&D data is based on best information available although it may differ from the status as at the date the firm entered the ARP. E&D data could not be established for some firms - these are included in the "unknown" category in the tables below A firm's status is based on the age, ethnicity or gender of the firms PC holders. Where 50%+ of PC holders are of one group, the firm is classed as that group. Where no group accounts for 50%+ of the total, the firm is classed as having "No Majority Group".

Age	Total / %	Overall firm population %
22-30	8 / 3%	1
31-40	49 / 20%	11
41-50	53 / 22%	17
51-60	31 / 13%	18
61-65	9 / 4%	5
65+	5 / 2%	3
No majority group	79 / 33%	45
Unknown	7 / 3%	0
Grand Total	241 / 100%	100

Ethnicity	Total / %	Overall firm population %
BME	99 / 41%	11
White	50 / 21%	76
No Majority Group	43 / 18%	8
Unknown	49 / 20%	6
Grand Total	241 / 100%	100

Gender	Total / %age	Overall firm population %
Female	44 / 18%	24
Male	155 / 64%	64
No Majority Group	36 / 15%	12
Unknown	6 / 2%	0
Grand Total	241 / 100%	100

Appendix 2: Breakdown of the status of new firms created in 2009 by age, ethnicity and gender

Based on all firms created between 01/01/2009 and 31/12/2009 and entering ARP within 30 days of creation without securing market insurance prior to entering ARP Based on combination of REGIS and Capita data. Date entered ARP taken to be earliest identified between these sources.

E&D data is based on best information available although it may differ from the status as at the date the firm entered the ARP. E&D data could not be established for some firms - these are included in the "unknown" category in the tables below.

Detail for all other firms is based on all Law Practices created in 2009, excluding those identified as entering the ARP A firms status is based on the age, ethnicity or gender of the firms PC holders. Where 50%+ of PC holders are of one group, the firm is classed as that group. Where no group accounts for 50%+ of the total, the firm is classed as having "No Majority Group".

Percentages in the tables to the left show the proportion each group makes up of either the new firms to ARP or new firms to other QI categories (e.g. BME firmsmake up 34% of new firms in ARP).

Percentages in the tables to the right show the proportions of each specific group in the new firms to ARP or new firms to other QI categories (e.g. of all new BME firms, 8% were insured by the ARP and 92% by other QI).

Statistical significance tests could not be applied to the row data because of the small numbers involved.

Firms created 2009 straight to ARP

Age	Firm to ARP	Firm to other QI	Total
22-30	1 / 2%	46 / 4%	47
31-40	18 / 44%	295 / 23%	313
41-50	11 / 27%	280 / 22%	291
51-60	3 / 7%	150 / 12%	153
61-65	0 / 0%	25 / 2%	25
65+	0 / 0%	6 / 0%	6
No majority group	8 / 20%	447 / 35%	455
Unknown	0 / 0%	46 / 4%	46
Grand Total	41 / 100%	1295 / 100%	1336

Age	Firm to ARP	Firm to other QI	Total
22-30	2%	98%	100%
31-40	6%	94%	100%
41-50	4%	96%	100%
51-60	2%	98%	100%
61-65	0%	100%	100%
65+	0%	100%	100%
No majority group	2%	98%	100%
Unknown	0%	100%	100%
Grand Total	3%	97%	100%

Ethnicity	Firm to ARP	Firm to other QI	Total
BME	14 / 34%	157 / 12%	171
White	11 / 27%	877 / 68%	888
No majority group	3 / 7%	126 / 10%	129
Unknown	13 / 32%	135 / 10%	148
Grand Total	41 / 100%	1295 / 100%	1336

Ethnicity	Firm to ARP	Firm to other QI	Total
BME	8%	92%	100%
White	1%	99%	100%
No majority group	2%	98%	100%
Unknown	9%	91%	100%
Grand Total	3%	97%	100%

Gender	Firm to ARP	Firm to other QI	Total
Female	12 / 29%	373 / 29%	385
Male	26 / 63%	728 / 56%	754
No majority group	3 / 7%	148 / 11%	151
Unknown	0 / 0%	46 / 4%	46
Grand Total	41 / 100%	1295 / 100%	1336

Gender	Firm to ARP	Firm to other QI	Total
Female	3%	97%	100%
Male	3%	97%	100%
No majority group	2%	98%	100%
Unknown	0%	100%	100%
Grand Total	3%	97%	100%

Appendix 3: Breakdown of firms in the ARP for more or less than 365 days at 2 February 2010 by age, ethnicity and gender

Based on combination of Capita and REGIS data Tables show E&D data for firms which spend more or less than 365 consecutive days in the ARP and are in the ARP as at 02/02/2010 E&D data is based on best information available although it may differ from the status as at the date the firm entered the ARP A firm's status is based on the age, ethnicity or gender of the firms PC holders. Where 50%+ of PC holders are of one group, the firm is classed as that group.

Where no group accounts for 50%+ of the total, the firm is classed as having "No Majority Group" Percentages in the tables to the left show the proportion each group makes up of either the less or more than 365d categories (e.g. BME firms make up 41% of firms in ARP for less than 365d).

Percentages in the tables to the right show the proportions of each specific group in for more or less than 365days (e.g. of all BME firms in ARP, 79% were in for less than 365d and 21% for more Significance tests found that there are no statistically significantly unexpected results arising from the data.

Age	Less than 365d	More than 365d	Grand Total
22-30	5 / 3%	3 / 6%	8
31-40	40 / 21%	9 / 18%	49
41-50	41 / 22%	12 / 24%	53
51-60	24 / 13%	7 / 14%	31
61-65	6 / 3%	3 / 6%	9
65+	4 / 2%	1 / 2%	5
No Majority Group	64 / 34%	159 / 29%	5
Unknown	6 / 3%	1 / 2%	7
Grand Total	190 / 100%	51 / 100%	241

Age	Less than 365d	More than 365d	Grand Total
22-30	63%	38%	100%
31-40	82%	18%	100%
41-50	77%	23%	100%
51-60	77%	23%	100%
61-65	67%	33%	100%
65+	80%	20%	100%
No Majority Group	81%	19%	100%
Unknown	86%	14%	100%
Grand Total	79%	21%	100%

Ethnicity	Less than 365d	More than 365d	Grand Total
BME	78 / 41%	21 / 41%	99
White	37 / 19%	13 / 25%	50
No Majority Group	35 / 18%	8 / 16%	43
Unknown	40 / 21%	9 / 18%	49
Grand Total	190 / 100%	51 / 100%	241

Ethnicity	Less than 365d	More than 365d	Grand Total
BME	79%	21%	100%
White	74%	26%	100%
No Majority Group	81%	19%	100%
Unknown	82%	18%	100%
Grand Total	79%	21%	100%

Gender	Less than 365d	More than 365d	Grand Total
Female	32 / 17%	12 / 24%	44
Male	126 / 66%	29 / 57%	155
No Majority Group	27 / 14%	9 / 18%	36
Unknown	5 / 3%	1 / 2%	6
Grand Total	190 / 100%	51 / 100%	241

Gender	Less than 365d	More than 365d	Grand Total
Female	73%	27%	100%
Male	81%	19%	100%
No Majority Group	75%	25%	100%
Unknown	83%	17%	100%
Grand Total	79%	21%	100%

Appendix 4: Risk assessment scores of firms in the ARP at 2 February 2010 broken down by age, ethnicity and gender

Risk banding based on actual score of risk assessment process.

Where actual score <= 40 = LOW; between 40 and 60 = MEDIUM; 60> = HIGH.

Based on REGIS data, and information provided by RADC.

The following tables only include firms which were risk assessed with matter reason "Breach of Indemnity Rules". Not all firms in the ARP were risk assessed with this matter reason - risk assessments were not conducted for firms in the ARP which met the following conditions:

Firms with a pending visit reference for PSU, FI or CIAO
Firms that have been visited within the last 12 months by PSU and/or FI.

Therefore the tables below do not provide a comprehensive summary of risk scores for all firms in the ARP.

A firms status is based on the age, ethnicity or gender of the firms PC holders. Where 50%+ of PC holders are of one group, the firm is classed as that group. Where no group accounts for 50%+ of the total, the firm is classed as having "No Majority Group".

Tables show the proportion of each risk score banding for each group.

Data as of assessments completed by end November 2009.

Significance tests found that there are no statistically significantly unexpected results arising from the data.

Age	High	Medium	Low	Grand Total
22-30	0 / 0%	2 / 50%	2 / 50%	4 / 100%
31-40	4 / 13%	8 / 26%	19 / 61%	31 / 100%
41-50	4 / 12%	14 / 42%	15 / 45%	33 / 100%
51-60	3 / 19%	4 / 25%	9 / 56%	16 / 100%
61-65	0 / 0%	1 / 25%	3 / 75%	4 / 100%
65+	0 / 0%	0 / 0%	2 / 100%	2 / 100%
No majority group	3 / 9%	10 / 29%	22 / 63%	35 / 100%
Unknown	1 / 9%	5 / 45%	5 / 45%	11 / 100%
Grand Total	15 / 11%	44 / 32%	77 / 57%	136 / 100%

Ethnicity	High	Medium	Low	Grand Total
BME	6 / 11%	18 / 34%	29 / 55%	53 / 100%
White	2 / 9%	7 / 30%	14 / 61%	23 / 100%
No majority group	3 / 11%	11 / 39%	14 / 50%	28 / 100%
Unknown	4 / 13%	8 / 25%	20 / 63%	32 / 100%
Grand Total	15 / 11%	44 / 32%	77 / 57%	136 / 100%

Gender	High	Medium	Low	Grand Total
Female	3 / 11%	8 / 30%	16 / 59%	27 / 100%
Male	9 / 12%	22 / 29%	45 / 59%	76 / 100%
No majority group	2 / 9%	10 / 43%	11 / 48%	23 / 100%
Unknown	1 / 10%	4 / 40%	5 / 50%	10 / 100%
Grand Total	15 / 11%	44 / 32%	77 / 57%	136 / 100%

Appendix 5: ARP: Review of Law Firms. Marsh, February 2010

View PDF of presentation (16 pages 1.9MB)

Appendix 6: Outcome of the SRA survey of ARP firms in January/February 2010

The survey questions

Please provide your firm name, address, SRA firm identification number and name of the person completing this form (firms were given the option of applying anonymously).
Please let us know the reasons why you believe you were unable to obtain professional indemnity insurance for the period 2009/10.
What reason(s) was provided by the insurer or broker for declining cover?
Please provide a copy of your completed insurance proposal form.
Do you have any concerns about the way your application(s) were dealt with either by your broker or the insurer? If yes, please provide details.

The number of responses

We received a total of 11 responses.

The firm's reasons why they had not been able to get professional indemnity insurance for 2009/10

Outstanding claim	1
Outstanding complaint to the SRA	1
Nature of the work done (citing conveyancing and immigration in particular)	2
No justification given, firm believes racial discrimination	1
Qualified outside England and Wales	1
Small firm/low turnover	6
The premium quoted was excessive	2
No reasons were given	1
Presence in the ARP pool	1

NB Some firms gave more than one explanation

Summary of comment/concerns

The stigma of being in the ARP meant insurers were reluctant to insure for the following year
The SRA visits that resulted from membership of the ARP were being used against the firm even where there were no claims/complaints
The insurers were using the single renewal date to their advantage in negotiating the quote and there was chaos at that time of year
Insurers were 'abusive' by offering excessive quotes and treated firms with contempt by delaying their response until the last minute
Unmeritorious claims (which were still unresolved) were still counting against some firms
Insurers do not have a proper yardstick and generalise firms
Insurers don't undertake a meaningful risk assessment, relying largely on past claims record.

Appendix 7

The Law Gazette: Claim of racial bias by insurers in indemnity cover

by Rachel Rothwell

Created 21/10/2009 - 16:19

The Law Society is investigating allegations that professional indemnity brokers and insurers have discriminated against firms with African and Asian-sounding names, the Gazette has learned.

The Society received a complaint to its professional indemnity insurance helpline from a solicitor in Birmingham, claiming that insurers were providing cover late or not at all to firms which sounded as if they were run by solicitors from ethnic minorities. The solicitor said she had spoken to other firms in the region who had experienced similar problems.

She also contacted the Black Solicitors Network, which had received similar complaints from four of its members. The BSN has pressed the Law Society and Solicitors Regulation Authority to investigate the issue, which both bodies have said they will do.

BSN chair Cordella Bart-Stewart said that while the evidence was anecdotal, the complaint made to the helpline was 'not an isolated case'.

She added: 'In the run-up to the 1 October renewal deadline, firms of solicitors with African or Asian surnames were being offered cover late, or not at all. Those with Asian names were being offered cover one week before the deadline. African firms were being offered cover even later than that.

'What has been suggested is that brokers are aware [that some insurers are unwilling to cover African and Asian firms] and have not been putting proposals in. Some African firms' proposals may not have gone in at all It is firms with four partners or fewer that have been specifically targeted'.

Bart-Stewart said she had asked the Law Society to provide data on when firms were provided with quotes, if at all, and whether firms with ethnic minority names were paying higher premiums. She added that if evidence of discrimination is found the matter should be referred to the Equality and Human Rights Commission.

Law Society chief executive Des Hudson said the Society would be investigating the matter 'as fully as we can'. He noted that there were 'snippets of information' which could point to racial bias, but more evidence was needed. The SRA also said it would investigate the matter.

A spokesman for the Association of British Insurers said insurers provide cover based on 'business risk, not colour'.

Appendix 8: Breakdown of the status of new firms created in 2008 by age, ethnicity and gender

Based on all firms created between 01/01/2008 and 31/12/2008 and entering ARP within 30 days of creation without securing market insurance prior to entering ARP Based on combination of REGIS and Capita data. Date entered ARP taken to be earliest identified between these sources E&D data is based on best information available although it may differ from the status as at the date the firm entered the ARP. E&D data could not be established for some firms - these are included in the "unknown" category in the tables below Detail for all other firms is based on all Law Practices (head offices) created in 2008, excluding those identified as entering the ARP A firms status is based on the age, ethnicity or gender of the firms PC holders. Where 50%+ of PC holders are of one group, the firm is classed as that group. Where no group accounts for 50%+ of the total, the firm is classed as having "No Majority Group".

Percentages in the tables to the left show the proportion each group makes up of either the new firms to ARP or new firms to other QI categories (e.g. BME firms make up 33% of new firms in ARP).

Percentages in the tables to the right show the proportions of each specific group in the new firms to ARP or new firms to other QI categories (e.g. of all new BME firms, 3% were insured by the ARP and 97% by other QI).

Statistical significance tests could not be applied to the row data because of the small numbers involved.

Ethnicity	Firm to ARP	Firm to other QI	Total
BME	6 / 33%	180 / 16%	186 / 16%
White	3 / 17%	712 / 62%	715 / 61%
No majority group	3 / 17%	105 / 9%	108 / 9%
Unknown	6 / 33%	153 / 13%	159 / 14%
Grand Total	18 / 100%	1150 / 100%	1168 / 100%

Ethnicity	Firm to ARP	Firm to other QI	Total
BME	3%	97%	100%
White	0%	100%	100%
No majority group	3%	97%	100%
Unknown	4%	96%	100%
Grand Total	2%	98%	100%

Gender	Firm to ARP	Firm to other QI	Total
Female	3 / 17%	290 / 25%	293 / 25%
Male	13 / 72%	679 / 59%	692 / 59%
No majority group	2 / 11%	130 / 11%	132 / 11%
Unknown	0 / 0%	51 / 4%	51 / 4%
Grand Total	18 / 100%	1150 / 100%	1168 / 100%

Gender	Firm to ARP	Firm to other QI	Total
Female	1%	99%	100%
Male	2%	98%	100%
No majority group	2%	98%	100%
Unknown	0%	100%	100%
Grand Total	2%	98%	100%

Age	Firm to ARP	Firm to other QI	Total
22-30	0 / 0%	37 / 3%	37 / 3%
31-40	5 / 28%	281 / 24%	286 / 24%
41-50	4 / 22%	243 / 21%	247 / 21%
51-60	5 / 28%	142 / 12%	147 / 13%
61-65	0 / 0%	14 / 1%	14 / 1%
65+	1 / 6%	6 / 1%	7 / 1%
No majority group	3 / 17%	376 / 33%	379 / 32%
Unknown	0 / 0%	51 / 4%	51 / 4%
Grand Total	18 / 100%	1150 / 100%	1168 / 100%

Age	Firm to ARP	Firm to other QI	Total
22-30	0%	100%	100%
31-40	2%	98%	100%
41-50	2%	98%	100%
51-60	3%	97%	100%
61-65	0%	100%	100%
65+	14%	86%	100%
No majority group	1%	99%	100%
Unknown	0%	100%	100%
Grand Total	2%	98%	100%

Appendix 9: 2008-09 ARP firms - status as at 02/02/2010

Based on Capita data, supplemented by REGIS data where required.

Current insurance information has been obtained from REGIS, and from Operations and Professional Indemnity teams.

Cessation information correct as per data recorded on REGIS - please note that cessation dates may be recorded after a firm has ceased trading.

It is possible that some firms which are not shown to have ceased trading actually have ceased.

Only firms which were a) in the ARP for at least 30 days, b) firm had at least two weeks forward cover from the day their completed form was received by Capita (to remove firms with retrospective only and short term cover).

The tables below exclude firms that were in the ARP in 2007/08. These have been excluded because they would not have had the option to remain in the ARP in 2009/10 (exceeded maximum of two years in the ARP), and therefore would be unable to fall into this category. Five firms have been removed from the 2008/09 year data below as a result of this.

Current insurance information for one firm is not currently available this is included in the "Awaiting confirmation" section.

Percentages in the tables to the left show the proportion each group makes up of the current status categories (e.g. female firms make up 30% of firms with current status of "ceased trading").

Percentages in the tables to the right show the proportions of each specific group in each current status category (e.g. of all female firms, 13% have current status of "Other Ins known").

Gender	Ceased trading	Other Ins known	ARP 2009-10 at 02/02/10	Awaiting confirmation	Grand Total
Female	21 / 30%	5 / 18%	14 / 23%	0 / 0%	40 / 25%
Male	40 / 57%	19 / 68%	35 / 58%	1 / 100%	95 / 60%
No Majority Group	6 / 9%	4 / 14%	11 / 18%	0 / 0%	21 / 13%
unknown	3 / 4%	0 / 0%	0 / 0%	0 / 0%	3 / 2%
Grand Total	70 / 100%	28 / 100%	60 / 100%	1 / 100%	159 / 100%

Gender	Ceased trading	Other Ins known	ARP 2009-10 at 02/02/10	Awaiting confirma tion	Grand Total
Female	53%	13%	35%	0%	100%
Male	42%	20%	37%	1%	100%
No Majority Group	29%	19%	52%	0%	100%
Unknown	100%	0%	0%	0%	100%
Grand Total	44%	18%	38%	1%	100%

Age band	Ceased trading	Other Ins known	ARP 2009-10 at 02/02/10	Awaiting confirmation	Grand Total
22-30	1 / 1%	0 / 0%	2 / 3%	0 / 0%	3 / 2%
31-40	12 / 17%	10 / 36%	15 / 25%	0 / 0%	37 / 23%
41-50	20 / 29%	6 / 21%	13 / 22%	0 / 0%	39 / 25%
51-60	7 / 10%	3 / 11%	11 / 18%	0 / 0%	21 / 13%
61-65	4 / 6%	0 / 0%	2 / 3%	0 / 0%	6 / 4%
65+	4 / 6%	4 / 14%	1 / 2%	1 / 100%	10 / 6%
No majority group	19 / 27%	5 / 18%	16 / 27%	0 / 0%	40 / 25%
Unknown	3 / 4%	0 / 0%	0 / 0%	0 / 0%	3 / 2%
Grand Total	70 / 100%	28 / 100%	60 / 100%	1 / 100%	159 / 100%

Age band	Ceased trading	Other Ins known	ARP 2009-10 at 02/02/10	Awaiting confirma tion	Grand Total
22-30	33%	0%	67%	0%	100%
31-40	32%	27%	41%	0%	100%
41-50	51%	15%	33%	0%	100%
51-60	33%	14%	52%	0%	100%
61-65	67%	0%	33%	0%	100%
65+	40%	40%	10%	10%	100%
No majority group	48%	13%	40%	0%	100%
Unknown	100%	0%	0%	0%	100%
Grand Total	44%	18%	38%	1%	100%

Ethnicity	Ceased trading	Other Ins known	ARP 2009-10 at 02/02/2010	Awaiting confirmation	Grand Total
BME	16 / 23%	12 / 43%	26 / 43%	0 / 0%	54 / 34%
White	30 / 43%	8 / 29%	17 / 28%	1 / 100%	56 / 35%
No Majority Group	9 / 13%	4 / 14%	6 / 10%	0 / 0%	19 / 12%
Unknown	15 / 21%	4 / 14%	11 / 18%	0 / 0%	30 / 19%
Grand Total	70 / 100%	28 / 100%	60 / 100%	1 / 100%	159 / 100%

Ethnicity	Ceased trading	Other Ins known	ARP 2009-10 at 02/02/2010	Awaiting confirma tion	Grand Total
BME	30%	22%	48%	0%	100%
White	54%	14%	30%	2%	100%
No Majority Group	47%	21%	32%	0%	100%
Unknown	50%	13%	37%	0%	100%
Grand Total	44%	18%	38%	1%	100%

Appendix 10: Summary of the QI responses

Summary of the responses provided by the 9 qualifying insurers who have responded to our equality questions (as at 16/04/10)

Row	1. Do you have an equality policy that applies to your customers and/or your employees?	2. What procedures do you have to demonstrate that you are not indirectly discriminating on racial grounds against customers or potential customers in the way that you assess their requests for professional indemnity insurance?	3. Have you ever had any complaint made to you by a solicitor customer or potential customer alleging racial discrimination (or any other discrimination)?
1.	We insure a very small number of firms and it is highly likely that we won't be looking to participate in this year's renewal process and therefore ARP.
2.	Although our Equal Opportunities Policy relates to employees, it provides a useful description of our zero tolerance approach to discrimination.	We follow the Treating Customers Fairly (TCF) Guide which details the Financial Services Authority's initiative and our response including the steps we have taken to monitor the fair treatment of customers throughout our business.	We have never received a compliant, of any kind, indeed, our statistics are very favourable compared to the insurance industry average.
3.	We do not have a separate equality policy for customers however I would refer you to our Corporate Social Responsibility policy which details the human rights and diversity elements. We have a team whose remit is to ensure that customers are treated with dignity and respect and without discrimination on the grounds of race, sexual orientation, disability, religion or belief. In addition, we adhere to the FSA's Treating Customers Fairly policy. Diversity is also referenced in our Business Ethics policy (all employees required to sign) and detailed thoroughly in our on-line training modules.	We have an underwriting strategy and guidelines in place for all professions we underwrite. All of our underwriters have to detail underwriting rationale for decisions they make on individual cases and there is an audit system in place where random cases are audited on a regular basis. This combined with the policies mentioned in answer to question 1 means that I am confident that decisions made by our underwriters are based purely on underwriting features of the risk such as claims experience and nature of business activities etc	We have had no complaints alleging racial discrimination (solicitors and non-solicitors PI)
4.	Our equality policy which refers to racial discrimination and other issues is set by the corporation (based abroad) which owns the UK company	We only write one UK firm and this is our entire portfolio of primary law firms - going forward we are not looking to write any more firms on this basis. Therefore, all firms are treated the same way when looked at on this basis in that we decline to quote them all.	No
5.	We have an equality policy that applies to our employees. We do not use a customer's ethnicity in our underwriting criteria.	We do not ask for information about a firm's ethnicity. A customer's ethnicity is not a factor for our underwriting selection.	One complaint alleging sexual and racial discrimination. We investigated the allegations made and concluded that there was no discrimination.
6.	Our ratings are based on quantifiable criterion and these do not include any reference to ethnicity, race, age or gender. For 2010/11 renewals an IT system is implemented that will rate many of our quotes before they are presented to the underwriter for final approval.		In respect to our solicitors insurance we have received no complaint or allegation from insured or potential insured's with reference to discrimination.
7.	Our Business Ethic Policy emphasises the importance of providing equal treatment for all. The ethos is carried over to our Employee Handbook which includes an equality policy.	Our underwriting criteria are subject to annual audits to ensure that they are being applied in accordance with, amongst other measures, its business ethics policy referred to.	We have never had any complaints alleging any form of racial discrimination.
8.	We are committed to Treating Customers Fairly and it is at the heart of our customer strategy. We are also committed to the promotion of equal opportunities for all employees and the only acceptable form of discrimination is on the basis of an individual's ability to do the job. We have an equal opportunities policy which reflects this.	Our underwriting of solicitors professional indemnity risks is based on risk (e.g. size of firm, fee splits, claims record etc). None of the questions relate to the ethnic origin of the principals or employees and at no point is this taken into account in the underwriting process.	I can confirm that we have not received any complaints regarding racial discrimination from solicitor customers or potential customers.
9.	We do have an equality policy which applies to employees; it does not specifically mention customers but indicates that employees must comply with the law. Our ethics guidance which applies to all employees states: "We provide fair, courteous and impartial service to all policyholders, customers and claimants and treat all requests for quotes and insurance coverage equally, in accordance with our lawful underwriting rules and guidelines. Also, "Treating Customers Fairly" is applied to the whole insurance industry by the FSA and is implicitly anti-discriminatory.	Our complaints system is designed to pick up any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of a person about the provision of, or failure to provide, a financial service, which alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience. It is intended that this is an early warning system of any problems. We are sensitive to this issue and it is discussed at team level by underwriters and risk managers; all our risk managers are solicitors and in exercising their judgement as to risk selection are aware of their separate responsibility under the Solicitors Code of Conduct. Our template risk analysis forms require objective justification of views taken and ensure that the same aspects of a firm are considered on every occasion; we do ask for CVs for all new businesses regardless of ethnicity	1 complaint of race discrimination which was not upheld by us or the Financial Services Ombudsman. We have discussed the case with the people concerned and the need to treat people fairly and have reviewed our criteria to check that they do not directly or indirectly discriminate against customers or potential customers on grounds of sex, race, and religion.

Appendix 11

Andrew Darby
Head of Professional Indemnity and Client Protection Policy
Solicitors' Regulation Authority
Ipsley Court
Berrington Close
Redditch
B98 0TD

26 April 2010

Dear Andrew

Thank you for copying your letter of 31 March about BME solicitors firms to the ABI. I want to reply on behalf of the ABI about some of the main issues that you raise, and I believe many of our members have written to you individually about their own policies in this respect.

The first point that needs to be made is that insurers take their responsibilities within the law extremely seriously. Insurers are governed in this area by the laws governing discrimination, such as the Race Relations Act, and the various pieces of European legislation which outlaw discrimination in the provision of goods and services. There are also rules on treating customers fairly, which the Financial Services Authority oversees. Insurers are regulated and supervised by the FSA, which takes active involvement in their day-to-day businesses.

The fundamental nature of insurance is that it prices risk. Insurance pricing is derived from actuarial modelling incorporating historical differences in claims experience. This actuarial process incorporates the available data to insurers including risk factors and claims experiences. Data is continually updated to ensure that actuarial models are an accurate reflection of actual risk factors and claims experiences. The end result is adjustments, both up and down, to risk pricing.

Overall, we would re-state the central feature of professional indemnity insurance. That it is based on an assessment of the risk presented by those people in a profession who may be exposed to claims. Insurers need to know who they are insuring, and what work they are doing. Enhanced scrutiny is inevitable in times of significantly increased claims, and a fragile outlook for the market. We still expect that a large number of claims arising from the credit crunch are still to materialise and to affect the market for years to come. Therefore we can expect the scrutiny to become more intense, for all solicitors' firms.

In your letter, you asked us about certain procedures which had been suggested as questionable. I will answer these in turn.

1. That firms were "looking much deeper into sole practices and small firms" and they being asked for the CVs of their partners.

In the current circumstances of the market, this is absolutely correct practise by insurers. The collapse of the housing market has exposed a raft of fraudulent or negligent practises in which solicitors were either complicit or accidental participants. As so many of these claims have now come in to insurers linked to such practices, causing losses to our members, they are exercising much increased caution about who they insure. Clearly, professional indemnity insurance focuses very much on individual professionals and their behaviour. It is good practise to look at potential customers as closely as possible. The evidence from our

members demonstrates that the smaller firms present a greater risk in terms of claims connected to conveyancing. It is smaller firms in general that are being more closely investigated by insurers, and they are not targeting any ethnic groups.

2. Solicitors' firms being targeted for their work type

As above, insurers are looking most closely as firms with exposure to conveyancing. As this has been a high-volume market linked to individual consumers, the small firms are more exposed in general to this market. Therefore, insurers are examining them very closely. But it is the type of work, not the ethnic origin of the solicitor, which is driving the process. Where firms have a good claims record, this will be taken into account, but insurers must be permitted to look at the type of work done and compare it with the prevailing claims experience in general to make underwriting decisions.

3. Anecdotal evidence of firms with certain postcodes, or with African or Asian names being refused insurance.

These are very serious allegations that would be contrary to the Race Relations Act and so anecdotal evidence is insufficient. Of course, there may be evidence that some geographical locations were heavily exposed to mortgage fraud such as those where a great deal of new building had happened, an area which we know from experience lent itself to mortgage fraud and insurers may rate on that basis. We would be keen to receive any evidence of discrimination against firms with certain names amongst their principals, and we would be happy to discuss this.

4. Firms refused insurance because they entered from abroad

Once more, we have seen no evidence thus far that this is happening. You will be aware that there are concerns from all quarters about the efficacy of the qualified lawyer transfer scheme, and we would be interested in contributing to any review of that scheme. Insurers will want to satisfy themselves that the firms they choose to underwrite are capable, and all information will be taken into account. But there is no evidence that we have seen that says any insurer is operating a blanket ban on such firms.

I note your comments about the SRA's regulatory role, and its duties. I must state though that the insurance industry has a regulator the Financial Services Authority. Where insurers are in breach of any duty or obligation, they will be dealt with by their regulator, and we would oppose any attempt to impose double regulation upon our members.

We take any allegations of discrimination very seriously. We are willing to engage fully in any work with the community of BME solicitors to discuss their concerns. The key to bringing this issue to a satisfactory conclusion is to ensure that all evidence of discrimination is made available so that it can be addressed honestly and fully. We welcome your suggestion of a discussion. We would be keen to talk with the SRA in the first instance on how that would operate. The ABI will be pleased to participate alongside representatives of qualifying insurers where appropriate.

I look forward to taking this issue forward.

Yours sincerely

Matthew Young Policy Advisor, Liability and Motor Regulation

Appendix 12: Solicitors' Indemnity Insurance Rules - Rule12.7 Draft Criteria

The SRA has power in any particular case to allow a firm to remain in, or to re-enter, the ARP after any date when the firm would otherwise cease to be an eligible firm.

It is envisaged that this power would be exercised only in exceptional circumstances. Any application on this basis should be made at least three months before the firm would otherwise cease to be an eligible firm.

Each application will be judged on its own merits. The SRA might exercise its discretion to extend the eligibility period by taking into account the following information:

Whether your firm is facing a problem that is wholly exceptional in nature;
Whether this problem is short-term;
To what extent where the causes of this problem outside the control of your firm;
The evidence you can produce to demonstrate the steps you have taken to address the problem and to minimise the risk of a reoccurrence;
What evidence is there of any objective assessment of the state of your firm by a third party;
Is there a reasonable prospect that your firm will be able to secure market cover at the end of the period of extension;
What are the firm's long term prospects;
Is your firm up to date with the payment of ARP premium and has it got a good payment record;
What is your firm's claims history and in particular whether claims have arisen as a result of acts or omissions whilst your firm has been in the ARP;
What is the length of the extension sought?

The claims history may be particularly relevant if your firm as it is now is facing the adverse consequences of claims that arose from an earlier structure of the firm. By way of illustration only: your firm may have inherited a series of claims that emanate from the acts or omissions of the equity principals or sole principal that formerly comprised the firm and before you became an employee, or were held out as a principal, in the firm; Or your firm may face a claim or claims that you can independently establish are vexatious for whatever reason and are likely to be struck out but which, as a consequence, currently cause your firm to be perceived as uninsurable on the open market.

To enable us to consider your application fully we may consult for further information: you and your firm; other sources within the SRA; previous Qualifying Insurers or their representatives; the ARP or its representatives.

If approval is granted to extend your firm's time in the ARP, this is likely to be upon condition that all premium, tax, associated costs and expenses are paid to the ARP manager when due.

Objective	Action required
Keep the ARP under review	Work with Capita to improve the data recorded for ARP firms for the next insurance year to improve our ability to capture and monitor the data
	Ensure that better and more detailed records are kept for ARP firms as to why they were unable to obtain insurance on the open market
	Compile and review the 'rehabilitation data' for the 09/10 ARP firms
	Ensure that data is captured for all firms entering the ARP at the commencement of the insurance year, including those that subsequently withdraw during the 'grace period'
	Review and consider further, through engagement with the profession, the age and gender equality impacts of the proposed changes to the ARP
	If possible in light of the new Diversity Census data, review the equality impact for equality in relation to disability, sexual origin, religion or belief
	Monitor and review data for the ARP firms in the next insurance year and publish a report in relation to the impact on equality of the changes that are made
Work with stakeholders to better understand the alleged race discrimination in the professional indemnity insurance market and improve equality practises and outcomes in the sector	Follow up the SRA's initial request for equality data with those qualifying insurers who have not yet responded
	Set up a forum for the SRA, qualified insurers and representatives of BME firms to discuss the issues of concern
	Advise the FSA of the evidence identified within this full EIA and work with the FSA to identify the issues and develop an action plan to address any concerns
	Work as appropriate with the EHRC in relation to equality in the professional indemnity insurance sector
	Work with the Law Society to draft and implement an action plan arising from the research data (not yet published)
Ensure that ARP firms are more effectively regulated	Review the effectiveness of the improvements introduced for the 09/10 insurance year
Ensure that ARP firms are more effectively regulated	Start the risk assessment process earlier and take appropriate risk based action earlier
Ensure that support is available for all solicitors seeking to set up new firms	Work with the Law Society to ensure that there is adequate provision of advice for solicitors seeking to set up new firms, through review and extension where necessary of the seminars provided by the Law Society
	Work more closely with the Sole Practitioner's group to support the guidance that they give to solicitors proposing to set up new firms
	Continue to offer guidance to Solicitors through the SRA' Professional Ethics helpline and review whether there is any further help that can be offered by the SRA
	Promote the guidance and seminars (in relation to setting up a new firm) that are available to BME solicitors in particular
Implement published criteria for firms seeking to stay in the ARP for than 12 months	Agree and publish objective criteria
	Review and report on the number of firms granted more than 12 months in the ARP
Continue to engage with stakeholders in relation to the professional indemnity insurance scheme and the ARP	With the qualified insurers through the existing arrangements.
	With the BME stakeholders through the BME forum or otherwise as requested.
	With the Sole Practitioners Group through regular meetings.
	With the Law Society as appropriate.
Improve how the SRA can promoting equality in relation to the professional indemnity insurance scheme	Consider adding equality requirements to the qualifying insurers agreement

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