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
