Up to 175 firms at risk of closure after failing to secure indemnity cover

A total of 185 firms have applied to the Solicitors Regulation Authority (SRA) for the extended indemnity period (EIP) of insurance having failed to secure professional indemnity insurance (PII) cover by the regulator’s 1 October deadline.

Of those 185 firms, 10 have since secured cover, leaving a total of 175 that are now scrabbling to find PII coverage before the end of the 90 days which the EIP covers. 

Firms are able to practise normally for the first 30 days while attempting to obtain a qualifying insurance policy, but after that date they may only work on existing instructions. 

The news follows the earlier collapse of two insurance companies serving the legal market, Balva (18 June 2013) and Berliner (10 September 2013).

Lockton Global Professional Risks Solutions senior vice-president Steve Holland said: “With the demise of Balva and then Berliner, about 1,300 firms were left scrambling for cover in the two and a half weeks before renewal. We’re not surprised there are so many who applied for the extended indemnity period.”

Insurers agree that the majority of firms entering the EIP will be on the small side – between one and five partners – however there is also the odd larger firm that has failed to secure cover. 

“In some ways firms have led themselves into this predicament by buying other businesses and not necessarily understanding all the implications,” continued Holland. “They’re inheriting their track record and being tarred with the same brush.” 

Holland predicted that as many as half of all those 175 firms still lacking PII coverage may fail to secure a deal within the SRA’s 90-day period. 

Howden director John Wooldridge agreed.

“Well over 50 of those firms won’t find anything. A number of firms will be forced to stop trading. It will largely be those that are habitually incompetent,” Woolridge said.

In April 2011, the SRA decided to scrap the assigned risks pool (ARP) – the insurer of last resort for firms which are unable to secure PI cover on the open market. As of 1 October 2013, the pool has been replaced with a system where insurers offer a three-month extended policy period to firms who have been unable to obtain insurance for the coming year (13 April 2011). 

If a firm fails to secure cover by the end of the 90-day period it must close. 

In 2010/11, 236 firms were covered by the ARP – an increase on the 95 firms covered the previous year.