News release

Review suggests gap in protection for clients

The Solicitors Regulation Authority (SRA) may consult on only allowing rated insurers to provide professional indemnity cover after it discovered clients of law firms whose policy was provided by an unrated company did not receive the necessary protection.

The SRA commissioned insurance broker and risk specialist Marsh to determine if clients of England and Wales law firms enjoyed the same protections regardless of the rating of the PII providers. The review was sparked following the problems faced by Latvian insurer Balva, which has gone into liquidation.

The Latvian financial services regulator claimed this did not qualify as an insolvency event. Other issues involving the collapse of Gibraltar-based Lemma in September 2012 also raised concerns at the Authority.

Marsh's initial findings have suggested that there may be inconsistencies in protections for clients depending on the status of the insurer - protections that were believed to be the same. The SRA has therefore proposed to its Board that it insists that all those applying to be added to its Participating Insurers list have a financial strength rating of at least B from a recognised rating agency.

Agnieszka Scott, Director of Policy and Strategy said: "We have always resisted calls to insist that insurers have a rating for a number of very valid reasons. The most valid of these was always the fact that we understood the protections offered to clients were the same, regardless of who their solicitor was insured with.

"Recent events however have made us look again at this issue to ensure that clients are protected. And we have been told that there may be inconsistencies, so we are proposing on insisting on a rating for insurers on the participating list."

To be eligible to write compulsory professional indemnity insurance for solicitors, an insurer must be authorised by the Prudential Regulation Authority (PRA) or be an EEA insurer passported into this country to write insurance business. The SRA has always deferred to the relevant regulatory bodies to vet the financial stability of insurers.

The Board will discuss the matter when it meets at Martin Lane on Wednesday 22 January. The consultation is intended for publication in February and should last eight weeks.

Go to the Board papers

 
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