SRA proposing to end post six-year run-off cover
The SRA has announced proposals to end the provision of post six-year run-off cover (PSYROC), because the protection is thought to be disproportionately expensive. If effective, this means that the Solicitors Indemnity Fund (SIF), which provides the additional cover for closed firms, would end, and any remaining funds would be handed to the Law Society.
The SRA has reported its reluctance to keep extending the SIF, which it has done on three occasions since the SRA assumed responsibility for it in 2006. The latest extension, to 2022, was to allow more time to consider longer-term options in relation to PSYROC.
After careful consideration of the evidence, including analysis from an independent expert review, and of the proposals put forward by others, the SRA is now consulting on whether regulatory arrangements should include PSYROC as a consumer protection, and what that means for the future of SIF.
The consultation paper sets out a range of options including no future provision of PSYROC, continuing PSYROC with new funding arrangements, and through different models, arranging PSYROC through insurance on the open market. The SRA is consulting on all options, but says the former is its preferred option because the costs compared to the volume and value of claims are unlikely to be a proportionate or efficient way of delivering consumer protection.
Ending run-off insurance would however present the decision of either asking solicitors to pay more for cover, or leave retired practitioners to face any claims themselves.
SRA forecasts show that on analysis of the last 10-year period, the number of consumers that would be likely to benefit each year would be around 31, with the average value of claims paid out, including defence costs, at £34,600. The requirement for ongoing funding from the profession is estimated at approximately £2.4 million a year, which is likely to be passed on to consumers.
The consultation also considers what should happen with the remaining reserves of the SIF if it no longer provides PSYROC, noting that transferring the residual funds to the Law Society would allow the society to use them for the benefit of the profession.
Anna Bradley, chair of the SRA board, said:
“We appreciate that this is a controversial issue for some within the profession and indeed that there are a variety of views. As the regulator, we have to consider the right arrangements for the future, with a sharp focus on the interests of consumers and our other regulatory objectives. Our analysis, in the light of detailed evidence, shows that establishing or maintaining a regulatory scheme to deliver ongoing post six-year run-off cover is unlikely to be proportionate in light of the level of consumer protection it provides.”
Law Society president I. Stephanie Boyce has expressed concerns over the proposals, stating that:
“The removal of PSYROC and SIF will have a huge impact on the consumers affected. The average successful claim is over £34,000, which is a large amount of money for most people. The consumers who will suffer will employ solicitors on a reasonable assumption that they would have comprehensive protection if something went wrong.”
The consultation will run for 12 weeks until 15 February. During this period, the SRA said it will continue to engage widely with stakeholders to gather feedback.
“We have set out our thinking and a range of options in our consultation and I encourage everyone to give us their views on the best way forward. Our Board will carefully consider the feedback we receive before making a decision,” said Bradley.