The Law Society has begun to invite its stakeholders and members to consider replacing its professional indemnity insurance Assigned Risks Pool.
The ARP is a scheme put in place by the Society to provide professional liability insurance to law firms that find it impossible to procure cover by traditional means. The Society has put forward one alternative to the ARP where law firms would have a period of three to six months to either cease practicing, merge with another law firm, or procure alternative insurance.
Instead of the ARP providing cover for the legal practice, the firm’s current insurer would be required to provide run-off cover for a period of six years if the practice ceases doing business.
Chief executive for the Law Society, Desmond Hudson, commented on the new proposals. Mr Hudson stated that both the poor regulation and the cost of the ARP has been a major factor in the decisions of business liability insurance providers to reduce market share or exit the market completely. Additionally this has been a deterrent to new insurance providers looking to enter the professional indemnity insurance market.
Mr Hudson added that if this new approach were to be adopted, insurance providers will only be responsible for the risks of solicitor firms they actually cover. This will remove liability for risks these insurers did not cover, he added.
Professional negligence claims have a tendency to increase while the economy is uncertain. As a result, the cost of solicitors’ professional indemnity insurance to protect against such claims has rocketed since the global economic downturn.
Additionally, law firms that focus on the real estate market were singled out by some insurers for specific loadings due to mortgage fraud concerns. Insurers had fears that conveyancing firms would be hit with a wave of lawsuits in regards to incidences of fraud.