The Solicitors Regulation Authority (SRA) is to scrap the assigned risks pool, the insurer of last resort for firms which is available to firms which fail to secure professional indemnity (PI) cover on the open market.
The insurance market has long lobbied for radical reform of how the profession is insured, arguing that is unnecessarily escalates the cost of cover for all firms.
The SRA finally agreed to consult on future insurance arrangements in September and has now concluded that the ARP should be abolished from October 2012 (13 September 2010).
It will be replaced in October 2013 with a system where insurers offer a three-month extended policy period to firms which cannot obtain PI insurance for the following year.
The single renewal date, which has also come in for much criticism for helping ramp up market conditions in the build up to the renewal date, will stay in place until October 2013.
However, calls for a variation to the gold-plated cover all firms are required to have in place have been rejected by the watchdog.
SRA director of standards Richard Collins said: “The arrangements have been revised following extensive consideration of the consultation responses we received and the constructive discussions we had with stakeholders.
“It was clear from these that the biggest challenge the SRA had to address was the ARP. This is a complex issue and it is impossible to satisfy all parties, however we believe that the arrangements now approved offer the best way of ensuring client protection through a competitive insurance market.”
All insurers participating in the market contribute a proportion of the premium collected to the ARP. Between 2000 and 2007 those costs stood at 3 per cent of premiums collected annually. In 2008 claims exposure shot up and that figure is likely to be between 16 per cent and 22 per cent, increasing further still for 2009.