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ARP strategy paying dividends, says SRA

New enforcement measures, introduced by the Solicitors Regulation Authority to improve management of the Assigned Risks Pool (ARP) insurance scheme, are paying dividends.

Since the approach was introduced in July 2010, 82 firms covered by the ARP during 2009-10 have closed down, with a further 48 successfully obtaining market insurance for the next indemnity year. In 2010-11, 46 firms covered by the ARP have already closed and ten have been intervened.

There was concern about the amount of unpaid premiums by ARP firms and as part of its more rigorous approach, the ARP fund manager is more actively pursuing these payments on behalf of the insurers and the SRA is taking regulatory action for non-payment against 126 ARP firms. This work has led to formal disciplinary proceedings being commenced against ten firms, with others subject to other regulatory measures.

The SRA has also put greater effort and resources into helping firms manage their way out of the ARP. The number of firms that have been visited has almost doubled - 96 firms were visited under the strategy in 2009/10 while 181 have been visited so far this year.

Concerns that the enforcement strategy would have an adverse impact on BME majority-owned firms have not been borne out. The data for 2009/10 demonstrate that proportionately more white majority-owned firms closed either through intervention (6%) or through orderly wind down (33%) than BME majority-owned firms (3% and 31% respectively). What's more, BME majority-owned firms were more likely (25%) to find insurance on the open market in 2009/10 than their white majority-owned firm (16%) counterparts. This trend has continued in the outcomes data so far available for 2010/11.

The cost of funding the ARP, providing Professional Indemnity Insurance (PII) to firms that cannot get cover on the open market, has been increasing on an annual basis with recent figures showing it represented over 15% of total PII premiums for solicitors in England and Wales. The SRA Board has recently adopted proposals for the future of client financial protection, which will see the ARP replaced by alternative arrangements for the 2013/14 indemnity year.

Recognising the need to control risks and costs, the SRA Board agreed last July that a new enforcement strategy should be brought in to help firms manage their insurance payments and shut down the ones that failed to pay.

Chief Executive Antony Townsend explained: "The increasing size and cost of the ARP was causing understandable concerns and resentment throughout the profession as firms that could find insurance were facing rising premiums as they helped meet the payments of the ones that couldn't.

"It was also having the knock-on effect of creating a situation where rising premiums meant that more firms were unable to afford cover on the open market.

"It had reached a point where we had to take decisive action in the public interest and that of the profession."

Antony Townsend stressed that the SRA was taking a measured approach and was keen to help firms manage themselves out of the ARP, where this was possible.

"Some firms have had to be closed and others are being investigated at the moment, but many firms are being offered help to get them into a situation where they can find cover on the insurance market," he said. "It is also reassuring that the data show that the new strategy has not had a disproportionate effect on black and minority ethnic firms.

"We are pleased with the way the first year has gone but we will continue our efforts to manage the ARP tightly as we move towards its abolition, and put more firms in a position to be able to find their own PII cover."

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