Applications from solicitors firms looking to enter the Assigned Risks Pool (ARP) remain low for what is the final year of the "insurer of last resort", the Solicitors Regulation Authority (SRA) has reported.
The ARP provides Professional Indemnity Insurance (PII) for firms that have failed to secure cover on the open market. However, as part of a raft of measures the SRA put in place to further protect clients and increase the competitiveness of the market, the pool is being phased out, and 2012 is the last year such cover will be in place.
To date, 28 firms have applied to the SRA to go into the ARP since the solicitors' insurance renewal date of October 1. On October 4 last year, 53 firms applied to be covered for PII in this way.
These numbers of applications compare with 411 in 2010, before the SRA enhanced its policy. Changes included:
- Funding the ARP in 2012/13 by both the profession and the qualifying insurers
- Liability for claims arising from firms who have not taken out insurance moving from the ARP to the Compensation Fund
- The closing of the ARP as a provider of policies of qualifying insurance from 30 September 2013 (with the exception of the continued provision of run-off cover incepted before that date)
- Introducing from October 2012 the requirement that all policies of qualifying insurance make provision for extension by 90 days at the end of the insurance period if the firm has not taken out a new policy
Richard Collins, SRA Executive Director for Policy, said: "It was clear that to ensure the long-term sustainability of the PII arrangements that one of our biggest challenges would be to address the ARP. Doing this was complex, but we believe the arrangements approved and being implemented offer the best way of ensuring client protection through a competitive insurance market.
"The changes we have introduced will ensure firms have PII in place that provides the required level of consumer protection. We are also ensuring there is a sustainable market for the long term by creating a competitive and open insurance market. We are implementing this in a phased way over a number of years to ensure a smooth transition and maintain stability.
"We will be carefully monitoring the effect these changes have. We have also put new systems in place for insurers to alert us at an early stage where firms are experiencing problems. This means we can provide early support to firms, and where necessary, protect consumers from a sudden and disorderly closure."
In October 2013, the ARP will stop providing qualifying insurance and will be replaced with a system where insurers offer a three-month extended policy to firms which cannot obtain PII for the following year. A firm may continue to practise while attempting to obtain a policy for the first 30 days of this extended indemnity period.
For the remaining 60 days - the Cessation Period - firms may only work on existing instructions while attempting to find insurance, or conduct an orderly closure in the case that insurance is not obtained. The SRA decided to manage insurance arrangements in this way in April 2011 after it was revealed that the cost of funding the ARP had been increasing year on year, representing more than 15 per cent of total PII premiums for solicitors in England and Wales.
Further information on the SRA and PII is available on the professionalindemnity pages of this website.
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