Trouble indemnity

Pay attention at the back: it’s time to talk about professional indemnity insurance for law firms.

Granted, it’s not quite as exciting as a hung parliament, but believe me, it’s got it all: conflict, pathos, suspense and what’s shaping up to be a damn fine narrative arc. First, the conflict. This is between the insurers and the Solicitors Regulation Authority (SRA) – although perhaps conflict isn’t quite the right term, since the insurers are enraged and the SRA, in usual passive-aggressive style, isn’t engaging. The insurers say if the way the profession is insured isn’t reformed, it’s uneconomic for them.

The pathos is as always centred on the firms in the Assigned Risks Pool (ARP), many of which are on the verge of going out of business; although in legal demonology they are currently seen as the equivalent of benefits scroungers.

The SRA says it has reviewed the ARP and is making changes. The insurers say those changes do not go far enough. They want tougher action on firms in the ARP that fail to pay their premiums; they want the regulator only to use insurers with a credit rating; and given that the ARP is to remain, they want the running costs to be provided for by a levy imposed by the Law Society.

This has all been brought to a head by the ­administration of Irish insurer Quinn (TheLawyer. com, 31 March), which had ­underwritten more than 2,000 firms at the smaller end of the market. So here’s the ­suspense: it would only take another insurer to ­falter for the market to go into a tailspin. And that has an impact on the profession, which may end up being underinsured at a time when negligence actions have never been higher.

Inevitably, it means that premium rates will be rising through the roof, resulting in a squeeze on ­margins. Managing partners aren’t going to be happy about extra costs ladled onto their firms at a time of political and economic uncertainty when recovery is so fragile.

And there is a wider issue. The speed with which the SRA has dealt with this row does not bode well for next year, when the regime governing ­alternative business structures comes into force. Those firms wanting clear guidance from the ­regulator may have a long wait.