Monday, 25 April 2016

Unfair constraint on free choice of legal regulator

Changing from one regulator to another should not be difficult and should not be restricted due to the exclusive and unnecessarily stringent arrangements operating between one regulator and the insurance industry. 

How on the one hand can you introduce the flexibility of choosing a regulator that suits your business, and which will benefit the client, and then with the other hand have a rule which places a financial burden of such a magnitude that the cost of switching becomes totally prohibitive.  It simply does not make sense and makes a mockery of not only the role of the Legal Services Board but also the legal profession as a whole.

So, you wish for example to switch regulator from the Solicitors Regulation Authority ( SRA) to the Council of Licensed Conveyancers (CLC). A logical move if you are a conveyancer because  you wish to be regulated by a regulator who understands conveyancing and who has a focused interest in how the conveyancing profession should be allowed to be developed.   You make the choice with business interest in mind and with the knowledge that you clients will benefit because of the Council’s insight into and knowledge of the conveyancing industry.  A regulator that is niche and which does not at least for now wish to be all things to all people.

A perfectly logical decision therefore and one which should be easy to implement.

To be fair the process of applying to the CLC is straight forward and unless there are major issues in the way you run your business, the application should be approved without too much difficulty.   The problem however is with the SRA and its agreement with the insurance industry.   Under  Participating Insurers Agreement (PIA) when one changes regulator this acts an automatic  trigger for ‘run off’ indemnity insurance.   The so called logic is that because PII policies are written on a “claims made” basis rather than the “losses occurring” basis used in general insurance, responsibility for the claim rests with the insurer in place at the time of the negligence.  If therefore at the time the claim is made there is no longer an insurance policy  in place which accords with the PIA the client may find him or herself uninsured.  

The theory behind this is that the PIA minimum term insurance is superior in terms of coverage to the insurance which is required by the CLC.  I say in theory  because having had some brokers to interrogate the differences they do not seem to  be that significant and far reaching.   To begin with, the minimum term insurance will still pay out on a claim if the solicitor does not pay the premium or where there has been bad faith on the part of the solicitor which has led to the claim.    Interestingly when the Insurance Act 2015 is introduced later this year the latter of these two difference will offer little comfort as the insurer will be able to void the claim in the event of fraud and or deliberate or reckless failure to disclose relevant facts.  It’s not clear at this stage how this will operate with within he PIA.

Essentially therefore, there is very little difference although when one looks at the cost of insurance there is a substantial and a totally unfair difference in annual premiums.   The cost of minimum term insurance and non-minimum term is staggering and does gives rise to the question of whether as a profession we have and continue to be been mugged when it comes to the extortionately high PII premiums charged.   A conveyancing business with a million pound turnover and a clean claims record would with the CLC be looking to pay a premium of around £15,000 compared to a premium of £80,000  for minimum term cover.   How can this be justified?   The same risks apply irrespective of regulator. The only conclusion is that you are paying £65,000 for the added consumer protection provided by the minimum terms.  The fact that the claim will be paid in the event of the wrongdoing of the conveyancer or the failure of the solicitor to pay the premium.  One in reply may ask with good reason why should an insurer pay out in these circumstance in any event.  More importantly why as a profession should we paying higher premiums to address the risk presented by the less honest members.  Why should we be deprived of the opportunity to choose the type and scope of cover we consider as a professional outfit will address the risk of a client raising a claim?

So the SRA as the situation currently stands will not allow a SRA regulated firm to choose its regulator unless it is satisfied that there will be adequate minimum term insurance in place to cover past claims ( for six years)  The practical consequence of this is that although with the CLC, you current year’s insurance could for example be   as low as £15K,  to make the switch and obtain the SRA waiver you would need to put into place a run off minimum term insurance policy which sticking with the present example, could cost as much as  £200,00 plus!

A nonsense and a major barrier to the freedom and benefits of choosing your regulator.

To be fair to the SRA the above unfairness and restriction on competitiveness has been identified and the SRA has began a consultation process with the view to removing the ‘run of’f requirement on change of regulator (http://www.sra.org.uk/sra/consultations/removing-barriers-switching-regulators.page).

Crispin Passmore, Executive Director for Policy at the SRA, commenting on the process stated:

"Firms should be able to switch to the regulator they feel is right for their business more easily than is currently the case. Legal businesses are increasingly owned by, and employ, a range of lawyers and non-lawyers, so choosing a regulator is an important business decision. Facilitating choice is a good way to encourage a modern, competitive market that provides affordable and accessible services.

"The Legal Services Board ensures minimum standards of client protection are maintained by all legal services regulators. Nonetheless, we have to be careful that removing unnecessary bureaucratic obstacles for firms does not create potential risks for the clients of firms wanting to switch. We want to get the right balance between encouraging a competitive market and ensuring the interests of those using legal services continue to be protected, so we are keen to hear views on how best to do this.

"If there are options that we have not thought of that should be considered, we are very open to ideas.”

I agree the client has to be protected but if as is available insurers are prepared to offer conveyancers looking to switch cover for past claims and which will meet claims providing the conveyancers have not failed to provide full disclosure and paid the premium then I am not sure how it can said the client will not be protected.   To claim otherwise would suggest that CLC conveyancer clients are at more risk than SRA conveyancing clients.  If this  so shouldn’t the public be made aware of this ?

It seems to me that the insurance industry has been able with the full acquiesce of the SRA to hide behind the PIA and charge inflated PII rates making it more expensive for SRA insured back conveyancers to compete with other regulated conveyancers.   This cannot be allowed to continue and as a profession we need to stand up and support the SRA with the proposed changes which could if implemented lead to reduction in the level of PII insurance premiums across the board.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

No comments: