Panel calls for dramatic reform of financial protection
A consumer panel has called for the merging of professional indemnity insurance and compensation to be actively explored.
The Legal Services Consumer Panel has published a report looking at whether the legal regulators financial protection regimes are fit for purpose.
Their report was published in response to the Legal Services Board’s request for feedback on the compensation system.
They say a single scheme would work by setting minimum terms and conditions for all lawyers’ indemnity insurance and allow premiums to be based on the type of legal work rather than professional title.
Such a scheme would also deliver a single compensation fund. The report also recommended exploring options to decrease the need for lawyers to hold client money.
Whilst the Panel found that the existing financial protection regimes cover the key risks consumers face when buying legal services, there were a series of concerns and issues that they feel regulators need to address.
These included possible gaps in coverage, e.g. insurers aggregating claims which then exceed caps on maximum pay-outs.
They also called for better information about the criteria and performance of compensation funds and a need for better information sharing between regulators and institutions such insurers and banks.
Elisabeth Davies, Chair of the Legal Services Consumer Panel, said: “Consumers use financial protection regimes rarely, but the implications of not getting this right can be devastating. “
The current system covers most of the risks consumers face, but there’s still room for improvement — such as closing gaps in coverage, greater transparency and making the schemes easier for consumers to find and use.
“We think the same level of protection could be delivered at a lower cost if the different regimes were united under a single scheme covering all lawyers. The status quo is expensive for lawyers and consumers ultimately pay the price.
“The Government has signalled it wants to simplify the regulatory system — this is an obvious candidate and could be a win-win for consumers and lawyers.”