Law Society proposes ARP replacement
The Law Society has put forward a proposal for an alternative structure to the current Assigned Risks Pool and is inviting members and stakeholders to consider this ahead of a debate by the Law Society Council later this month.
The proposals would mean legal practices unable to find PII cover in the open market would be given a minimum of three months and a maximum of six months by their insurers either to find alternative insurance, merge with another practice or cease practicing. Significantly under these proposals, the current insurer would provide the mandatory six years run off cover on cessation of the practice, in place of the ARP.
Law Society chief executive Desmond Hudson said that the alternative could provide both the protection for firms and their clients but also help to cut the cost of the ARP.
‘In recent years, the cost and poor regulation of the ARP has been a factor in insurers’ decisions to exit the market or reduce market share and also operates as a deterrent to new insurers looking to enter the solicitors’ PII market.
‘Under this possible approach insurers will only be liable for the risks of firms they actually cover; removing liability for pooled risks that they did not insure in the first place. This gives insurers an incentive to write risks in contrast to the current situation where ARP uncertainty exposes insurers to risks of others and provides a perverse incentive for insurers to limit market share.
‘We are seeking views in advance of Council’s consideration of our formal response to the SRA’s current consultation which, if adopted, would also include the SRA amending the terms of its qualifying insurers’ agreement so that insurers are required to inform practices six months before expiry whether or not they will offer them PII renewal.
‘Under this possible approach if a firm fails to find cover on the open market before their policy expires they would be covered by their existing insurer for an additional three-month period, at a rate based on the existing premium.’
‘In addition, our proposal would require insurers to respond to proposals within a specified time and where they issued quotes to make them available for a reasonable period, say 21 days.’
The Society is seeking views on its extended reporting period proposition before it submits its response to the SRA’s consultation on the wider reforms of indemnity arrangements. The SRA has recommended maintaining the ARP, but allowing firms to remain in it for six months rather than 12 months.
The same consultation also proposes removing cover for commercial entities.
‘We are deeply concerned about the impact of this proposition on those firms doing conveyancing. It seems probable if that went ahead that firms would not be able to act for mortgage lenders and the purchaser.
?Lenders will not expend resources checking the insurance arrangements of hundreds of firms before instructing them to act on the mortgage advance. This will be bad for solicitors, lenders and house buyers.’
The Law Society’s full proposal for an alternative to the ARP can be found here