Steering SIF back in the right direction
18 November 1997
Despite having been one of the Solicitors Indemnity Fund's strongest critics, Robert Sayer does not think it should be shelved; instead, he says, the way it is run needs to be improved.
Very shortly, the first of the Law Society working parties looking into various aspects of the Solicitors Indemnity Fund (SIF) will be reporting to the profession.
Despite my having been a long-term critic of SIF, I hope the working party recommends retaining our present mutual fund. I believe the problems the profession has with SIF are not caused by its form, but by the way it has been run.
A mutual fund has advantages. It does not need to make a profit, and therefore should be cheaper to run than a commercial insurer.
It is owned by its members, and ultimately they have some control over it. Abolishing SIF might be emotionally satisfying, but it is not a real solution. Indeed, it would probably make matters worse.
I hope that the working party will concentrate on how to make SIF more efficient and responsive to its members' needs. Let me mention one example, to illustrate.
At present we face two main, interrelated difficulties: the size of the pot needed to pay claims; and finding a fair way of sharing the burden.
Most of us believe that many of our problems are due to the property boom of the late 1980s, and the subsequent recession. Lenders have been clawing back money lost through their rash lending policies.
As a result, the cost to the fund of conveyancing claims is enormous, but because indemnity premiums are based on gross turnover, and conveyancing fees are so low, there has been a disparity between contributions paid for that work, and the cost of claims.
With fees of £300 or £400, contributions of 6 or 7 per cent only raise a fraction of the true cost of insuring the average conveyancing transaction - about £120. One way of addressing this dilemma would be to revive an idea first raised a couple of years ago: hypothecated insurance.
In the same way we collect from clients' money to cover the local search, stamp duty or Land Registry fees, we could collect from them a contribution towards the cost of indemnity.
It could be a flat fee of £120 per case, or it could be based on some percentage of the property's value, perhaps one tenth of 1 per cent. On completion, that sum would be paid to SIF. The same principle would, of course, also need to apply to any work done for the lenders.
This would provide a fairer link between the risk of conveyancing and the money received by the fund, and, because it would be collected from the client, it would relieve much of the existing burden. This can be done under the existing indemnity rules. A similar system has recently been introduced in Canada.
If worthwhile solutions are to be implemented, SIF's management will need to be courageous. At present I sense SIF feels under threat and is being defensive. This will hinder change.
To help SIF succeed and survive, which I would like to see, it should think about bringing in external experts to advise it and to steer it in a positive direction.
There are half a dozen firms in the City that specialise in the management of mutual funds, not only in the UK but round the world.
Let's plug into their expertise, and use them. Let's invite three or four of those companies to look at SIF, and give a presentation on what they think they could do to help us and at what cost. When we have that information, we can then decide whether or not to take up that offer.
I hope SIF sees that suggestion as helpful. Bringing in outside expertise does not have to mean sacking the present SIF management - after all, they have a lot of experience with the peculiarities of the solicitor's profession which we do not want to lose.
But, equally, we have to recognise that other people may have useful expertise as well. I hope a way can be found to enable both sides to work together for the benefit of the profession.