Tips for top-up

Anthony Falcon has some suggestions for improving cover. Anthony Falcon is chair of Anthony K Falcon.

There is an enormous difference between the contributions the Solicitors indemnity fund demands and the rate the commercial market could charge.

As an example, one firm due to pay the SIF £250,000 for the primary £1m and facing £100,000 deductibles on the commercial market could expect to pay a maximum of £25,000 with a deductible of about £5,000 per claim, capped at £50,000 if there were more than 10 claims.

This is not just a special offer to tempt people away from the SIF only to hike prices later – the rate could be guaranteed for three years.

But why cannot all this be achieved now? In the first place a cumbersome process was set in motion to establish the SIF in 1987. It involved an Act of Parliament, the Master of the Rolls and even the approval of the Lord Chancellor. Great store was set by the fact that no solicitor, however negligent, should be forced to close down.

Accountancy firms with bad claims records which cannot get get cover from the commercial market go into the assigned risks pool which is underwritten by the entire market. Why could not a similar system be used for negligent solicitors?

I am not suggesting that the SIF should be closed down. It could continue to underwrite as a fund, but in competition with the commercial market.

If the SIF proved unable to compete with the commercial market, then it should not expect to be allowed to carry on. The SIF's attitude seems to be that the profession must, and will, pay up.

But what gives me the right to pontificate in this matter? I am the chair of a small-to-medium-sized brokerage which has specialised in this type of insurance for the past 20 years.

Two years ago we participated in a top-up claim which cost more than £3m. This proved a milestone case because the usual rows emerged between the SIF and the top-up insurer over how the legal costs were to be apportioned.

We were able to assist the SIF and the top-up insurer to agree a formula. Under this, the SIF will automatically notify the top-up insurer of any matters which look like they may exceed £500,000.

More importantly, there is an agreed formula for apportioning the costs. This system works well and is a vast improvement on the previous free-for-all.

We have also been operating flexible three-year top-up policies. The importance of this is that if the market moves down, which it has consistently done for the past five years, then the benefit can be passed on to the client. If the market hardens, as it did in the late 1980s, then the rate protection element will keep the premium stable at the previous year's level. This is a much better formula than the fixed three-year arrangement offered by many brokers under which firms pay over the odds. It is also hard to break fixed deals, as some people have found to their cost.

One thing is for certain, the present arrangements are so unsatisfactory that something will have to be done.