We all know of the horror stories of premium rises for solicitors who conduct conveyancing and that if you can’t buy insurance on the open market the assigned risk pool will at a price enable solicitors to carry on in business but what is the actual cost of the ARP to the solicitors market.
Steve Ray the Risk Manager of Windsor Partners the professional indemnity insurance broker has recently provided Today’s Conveyancer with information showing just how bad the ARP has become. Despite the high price for insurance in the ARP it is clear that it isn’t sufficiently high enough to meet the cost of the liabilities it is supposed to cover.
In every year the ARP has paid out more than the premiums due which in a normal market would have resulted in rising premiums. So whilst the premium for the ARP is high it isn’t high enough to cover the losses
Another challenge is that whether or not the premium is paid by the firm the liability is incurred by all qualifying insurers. So for example in 2008 the premium received was £2,064,066 which amounted to less than 45% of the due premium but the actually liability incurred was £48,141,516. So the qualifying insurers paid out over £46M above the actual premium collected for ARP firms.
To put it another way the insurers’ losses were equivalent to £29 for every single property transaction in 2008 for only those claims relating to the ARP firms never mind any other claims made that year. No wonder insurers have been pulling out and wanting to change the rules
The worrying factor for the insurance companies is that the number of firms in the ARP has continued to grow and with the present state of the market that figure may be significantly higher next year.
The ARP does however offer clients an unrivalled protection when using solicitors practices because whether or not the firm has paid its premium the clients are covered up to the minimum terms and the advocates of the scheme argue that this protects the brand of solicitors and is therefore worth the cost.
The debate about the ARP continues but unless some change is agreed soon it looks as if the pressure on the broader market will continue to result in high professional indemnity premiums for solicitors.