ALMOST 2,000 law firms with poor indemnity insurance records face significant increases in their indemnity fund insurance premiums ranging from 5 to 200 per cent, under proposals to shift the insurance burden on to higher-risk firms.
Forty of the highest-risk firms will face the maximum 200 per cent loading under the proposals from the Solicitors Indemnity Fund (SIF) and Law Society standards and guidance committee.
But around 2,250 firms with a claims-free record would benefit from a 20 per cent discount, with another 3,800 firms enjoying smaller discounts.
The biggest firms, including the top City practices, are set to benefit thanks to a new way of calculating premiums using loss ratios. This would not only take the claims record into account, but also the amount of premiums paid in recent years.
John Speedman, SIF managing director, said: “This package of measures aims to sort out the problem of a few people being heavily subsidised by the rest, and refines the policy of fairer distribution of contributions.”
John Hayes, Law Society secretary general, added: “It is ensuring risk and contributions are properly related, and people with rather bad records see that reflected more accurately in what they have to pay.”
The proposals, out for consultation among the profession, are a result of several years careful assembly and analysis of data, said Speedman.
They are based on a system of low-claims discounts and penalty deductibles.
Michael Seymour, president of the London Solicitors Litigation Association, welcomed the package as a better representation of claims records.
Seymour, who also acts for the SIF as a Lovell White Durrant litigation partner, said: “The premium will now reflect the amount a firm actually pays. A large firm with a good claims record will benefit substantially from this. In the past they will have been paying well in excess of what they have cost the scheme.”
The system also aims to encourage effective systems to prevent avoidable claims, such as those arising from missed time limits, which generated 596 claims totalling £28 million out of 2,744 claims for 1994-95. A penalty equivalent to 50 per cent of the deductible should be applied to all time limit claims, says the Law Society standards committee.