ARP closure may cost tens of millions to profession

The Assigned Risks Pool closure may come at a cost of tens of millions of pounds to the legal profession as commercial firms end up having to absorb the price of claims for the smaller end of the solicitor firm profession.

The Solicitors’ Regulation Authority recently announced that ARP – the professional indemnity insurance provider of last resort for the industry – will be scrapped by the renewal date in October of 2013.  The cost of claims against the ending insurance pool will be distributed between both solicitor firms and business liability insurance providers that do business within the market.

The initial £10 million of professional liability insurance claims received against the 2013-2014 pool are to be paid by the legal profession itself under the new proposals.  The commercial insurance market will pick up the tab for the next £10 million before repeating the pattern until a cap of £50 million.  Anything over this cap will be absorbed by the insurance markets.

The new rules were put in place after a report commissioned by the SRA to investigate the possibility of the profession facing historic rate hikes if the current professional indemnity insurance framework was not changed. The insurance market’s central criticism of the current system would see the cost associated with paying claims against ARP firms as having increased at an exponential rate in the wake of the global economic crisis.

All insurance providers that participate in the solicitors’ professional indemnity insurance market are required to contribute a percentage of their collected premiums to the ARP in order to fund the facility.  Costs are passed on to the profession at large through insurance rates.  This means the top commercial firms pay more than smaller firms regardless of their risk profiles.

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