Is conveyancing more risky than other fields of work? Or is there a risk in the way it is carried out by bucket-shop firms wedded to a deadly combination of low fixed fees and dependence on a supply of work from local agents?
Whether or not the former is the case, premiums based on the number of transactions carried out by a firm would provide a more equitable means of insurance.
If the latter is the case, then premiums based on a firm's conveyancing fee income (SIF's favoured approach) would be regressive in relation to the risk insured against.
For some years after the abolition of scale fees, firms continued to include a significant value element in their conveyancing charges.
Insurance premiums based on fee income were therefore a crude but acceptable measure of risk. Bucket-shop cut-price conveyancing destroys that relationship. In consequence, the proposed weighting of premiums for conveyancing-based work fails completely to tackle the problem.
Consider two firms: one charges according to the work involved at £80 per hour, the other charges fixed fees of £200 per transaction.
The first firm does a thorough job and spends 10 hours on a purchase and mortgage (by no means an unusual length of time if the job is done properly), and charges £800.
Under the proposed premium loadings, about £160 of this would be paid in insurance premiums for that single transaction. For a fee income of £800 the bucket-shop firm would also pay premiums of £160, but the profession would be providing insurance cover for four transactions!
Suppose now that the first firm meets problems (with the title, the mortgage instructions, the planning conditions or the host of other points of which so many conveyancing clerks appear to be blissfully unaware) and are involved in further work so that the final cost is £1,000.
Despite that firm's extra care and diligence the logic of SIF's approach is to say that the risk to the fund has increased and SIF would levy a further £32 by way of insurance premium!
Meanwhile, for the same additional fee income, the bucket-shop firm will be congratulating itself on the "successful" completion of another transaction.
In return for a £32 premium we, the profession (not SIF) will have taken on the risk of an entire transaction.
The solution is straightforward. First, SIF should be able to say how many commercial and domestic conveyancing transaction (sales, purchases, mortgages) are carried out each year. If SIF does not have this information it is high time it collected it without further delay.
For firms to supply this data to SIF should be a simple exercise. It could include basic data on the value of each sale/purchase/mortgage (perhaps banded for simplicity).
Dividing the total cost to the profession of conveyancing claims by the total number of transactions would enable SIF to calculate a basic fixed premium for each conveyancing transaction (perhaps with a loading for high value work).
If SIF does not consider this to be a fairer solution, perhaps it should explain precisely why not.
There is no reason why we should accept the present system or SIF. If, by default, SIF is permitted to force on the profession its proposals for reform and, in relation to conveyancing, fails to recognise the fallacy of weighted premiums based on fee income, it will more surely ensure that Gresham's Law will operate in the legal marketplace: bad lawyers will drive out the good.
Dawson Lloyd & Cole