Switching Regulator – The PI insurance implications and how Howden can help
Following the approval of The Legal Services Board in October 2017, conveyancing firms are now able to transfer their activities from Solicitors Regulation Authority (SRA) regulation to that of the Council for Licensed Conveyancers (and vice versa).
This note seeks to address some of the insurance ramifications that should be borne in mind when considering such a move, specifically from SRA to CLC, as this is likely to be the focus for firms.
It is important to note that the CLC Professional Indemnity (PI) policy will only cover those activities that are regulated by the CLC i.e. Conveyancing, Trust & Probate and Will Writing – broadly there are three different scenarios in relation to the PI insurance arrangements which are likely to arise.
- SRA Firm that has only ever carried out work that can be regulated by the CLC
This scenario should be straightforward. We would obtain a quotation from an Insurer who has signed up to the CLC Participating Insurer agreement – and there would be no “legacy“ issues.
- SRA Firm that has also carried out work in the past that cannot be regulated by CLC
For example, a conveyancing firm that established a family law department in 2012 which then ceased to trade in 2014.
Whilst the bulk of the liabilities of the firm can be accommodated under a CLC Policy, the “run off” relating to the family law department cannot be accommodated (as it can’t be regulated by the CLC) and thus arrangements must be put in place to maintain consumer protection.
One solution would be to invoke the run-off provision of the existing SRA Policy, there would of course be a premium cost attached to such a move with run-off conversions typically attracting an additional premium of around three times the existing insurance premium. The firm could then obtain terms for a CLC compliant policy without the legacy issues; it is likely that this will be prohibitively expensive.
Alternatively, Howden have developed a single insurer scheme where the insurer is licensed by both the SRA and the CLC, therefore they can provide cover for the Firm going forwards and for the legacy issues.
- SRA Firm where 50 % of the revenue is derived from Conveyancing and 50 % from other areas of Law
It may well be feasible to continue with the SRA Policy, and to establish a new CLC compliant policy.
Again the Howden Single Insurer facility would be an attractive option, ensuring no confusion over where in the firm a claim originates.
Key differences between the SRA Minimum Terms and Conditions [ MTC] and the CLC Compliant Policy
- Unlike the SRA, the CLC arrangements require the premium to be paid for the Policy to respond.
- Notification provisions are tighter under the CLC insurance than those of the SRA Minimum Terms and Conditions [MTC]
- The CLC Policy will only cover those activities regulated by the CLC, unlike the broader cover provided by the SRA MTC which allows for a very generous definition of the activities of a solicitor.
- Under the CLC insurance arrangements, six year’s run-off cover is provided at no additional premium, but the Limit of Indemnity for run-off is £2m in the aggregate over the six year period.
Why move regulator?
We are in discussions with a number of firms who are considering making the switch in Regulator. None of them have cited the insurance arrangements as a reason to move.
Many of them are establishing Alternative Business Structures in order to revamp the configuration of their firms.
A majority wish to have the CLC as their regulator as they feel that the CLC understand their business and “talk the same language”
The following is an extract from the CLC’s Strategy 2018 – 2022 Document
“Three quarters of CLC Lawyers say that regulation by the CLC provides value for money and supports innovation and growth in their businesses and that being regulated by the CLC is either “extremely “ or “mostly” beneficial to their businesses”
“ The most recent performance assessment by the Legal Services Board gave the CLC the highest rating of all of the front line regulators”
So there has been no great rush to make the change but large numbers of firms are now seriously considering their options , with many actively considering the ramifications of making a change.
If you would like to discuss any issues arising please contact:
020 7133 1247
020 7133 474