The Solicitors Regulation Authority (SRA) has identified 117 firms still at risk of closure as a result of being unable to secure professional indemnity insurance.
There are 17 firms facing disciplinary action for failing to comply with the obligation to notify the SRA of their need to enter the extended policy period (EPP). The penalty potentially includes fines up to £2,000 and, or a referral to the Solicitors Disciplinary Tribunal.
Last month the SRA warned 141 firms to prepare for closure having failed to secure professional indemnity insurance (PII) on the open market ahead of the 1 October renewal deadline (25 November 2013).
Since then the regulator has sifted data provided from participating insurers, firms and its own records to establish that, as of 16 December, 117 firms remain in the EPP and require PII. Those firms must find cover or wind up their operations by 29 December.
The SRA has sent 108 compliance plans to firms, 94 of which have been signed and returned by managers. There is a disciplinary penalty for firms that fail to return the forms or keep the SRA updated on their position.
SRA director of supervision Mike Haley said: “All of these firms are aware that they should not be carrying out any work on behalf of clients beyond 29 December as they would be doing so without insurance, so all live client matters and client monies must be dealt with by that date”.
Haley went on to warn that there would be “swift regulatory action” for any firm continuing to act on client matters after the 29 December without insurance. “Exercising our powers of intervention may be considered where it is necessary and appropriate in the public interest”, he said.
However, there are concerns in the market over the SRA’s communication of the exact figures at risk since the 1 October deadline. Haley stood up in front of the Liverpool Law Society just weeks before these official figures were released and stated that 470 firms had failed to report that they were uninsured, sparking fears that far more than the now confirmed 117 were at threat.
Legal Risk partner Frank Maher, who was at Liverpool Law Society that day, said he hoped the figure was now accurate but still had concerns about the long-term impact of firms closing down having been with unrated insurers.
Around 1,300 firms were forced to find replacement professional indemnity insurance (PII) or put at risk of being closed down after the Latvian authorities withdrew operating licences from domestic insurer Balva in the summer (18 June 2013).
“Most of those were probably insured by Balva and there may still be claims outstanding from last year that will cause problems if Balva’s solvency doesn’t hold up,” he said. Even when a firm is closed the lifetime of potential claims can be several years.
“First of all you have matters where the solicitor has notified the insurer that there might be a problem but the claim has not come though yet. Then you have firms that have closed or may close and then there is still the six year run off to cover”, Maher added.
The SRA was originally notified of 277 firms that needed to enter the EPP, which was put in place after the SRA withdrew the assigned risks pool (ARP), the insurer of last resort for firms unable to get insurance (14 April 2011).
At the end of October, it confirmed that 153 firms could face closure (31 October 2013). Marsh head of UK regulated professions John Kunzler does not regarded the SRA’s latest figure as much different from previous years. “You always have in the region of 50 to 100 firms facing closure each year,” he said.
The EPP lasts for 90 days, and during the last 60 days, known as the cessation period, firms are prohibited from taking on new instructions and must prepare to close down at the end of the period if they do not find an insurer.
As well as scrapping the ARP, the SRA has withdrawn the single renewal date from October 2013 and changed the name of the ‘qualifying insurers’ list to ‘participating insurers’ to remove any notion that the SRA had vetted those insurers providing policies.
In September underwriter Berliner, which had been lined up to absorb Balva’s PII book, exited the market. It left more than 1,000 firms trying to find cover in the run up to the 1 October deadline (20 September 2013).
This came after XL Insurance and AIG announced plans to significantly reduce their market share while Aon Risk Solutions extended its exclusive arrangement with QBE Insurance to take a larger market share (15 August 2013).