FOR IMMEDIATE RELEASE
Friday, 15 July 2016
Review of restrictions on choice of insurer
The Legal Services Board (LSB) publishes today the findings of its thematic review of restrictions on choice of insurer including the independent advice from the Regulatory Policy Institute (RPI).
Professional Indemnity Insurance (PII) is an important but costly part of doing business for regulated legal practitioners, who have expressed concerns about that cost in previous LSB research. How PII is supplied - and any regulatory restrictions on practitioners' choice of PII supplier - are likely to have implications for practitioners, consumers and approved regulators (ARs).
The review highlights questions that ARs can reasonably be expected to ask themselves in order to develop the best regulatory response on choice of insurer. Key points in our report and in RPI's advice are:
- PII is costly and can affect decisions about entry to the legal services market, mobility and innovation in the market, and exit from it
- Historic regulatory restraints on practitioners' choice of PII provider are being removed with fewer regulatory limits on who can provide PII
- Commercial insurers appear to view their target market as legal services practitioners generally, rather than as separate markets for solicitors, conveyancers, barristers etc.
- To be effective, ARs need to understand the PII market as it can affect competition between legal services practitioners and have implications for the protection of consumers.
Neil Buckley, Chief Executive of the Legal Services Board said:
"PII is important - it protects consumers' and practitioners' interests and builds public confidence in buying legal services. This review recognises that to remain fit for purpose, ARs' requirements in relation to PII need to take account of ongoing developments in the legal sector and in PII markets.
Various arguments have been made in favour of different models for delivering PII, such as an open market, the use of a master policy or the creation of a mutual fund. With this review we are not looking to specify the 'right' answer for any regulator. Instead this review seeks to provide the basis and tools for ARs to make evidence based decisions in this area that reflect their duties under the Legal Services Act.
The need for regulatory intervention in any area should be considered from first principles. Existing obligations also need to be reviewed periodically with a view to justifying continued intervention. We encourage the ARs to make use of this report and RPI's advice in carrying out this important assessment on restrictions on choice of insurer."
For further information, please contact our Corporate Director Julie Myers or by calling 020 7271 0059.
Notes for editors:
- The Legal Service Board's (LSB) thematic review can be found here.
- A summary of our review is available here.
- The independent advice prepared for the LSB by the Regulatory Policy Institute: Regulatory issues surrounding professional indemnity arrangements in legal services provision can be found here.
- An overview of current approved regulator and some comparable regulatory arrangements on choice of insurer is provided at Annexes A and B of the thematic review. At present allowing practitioners to choose their insurer is generally the chosen approach (although this may be subject to limitations, such as insurers having to sign up to minimum terms and conditions for PII cover). The BSB is currently the only AR that restricts choice to the extent of stipulating the use of a specific insurer - namely the Bar Mutual Indemnity Fund - by self-employed barristers, although BSB-regulated entities are allowed to choose their insurer. Beyond England and Wales some other legal services regulators, for example The Law Society of Scotland, place restrictions on choice of insurer.
- LSB research in 2015: The Regulated communities' views on the cost of regulation, identified that PII is perceived by practitioners to be one of the highest cost areas of regulation, but was also an area of regulation frequently chosen by practitioners as 'important to keep'.
- Further LSB research in 2015: Innovation in legal services, indicated (at section 5.3) that barristers view regulatory requirements around insurance as particularly problematic with regard to innovation when compared to solicitors.
- The Legal Services Act 2007 created the LSB as a new regulator with responsibility for overseeing the regulation of legal services in England and Wales. The new regulatory regime became active on 1 January 2010.
- The LSB oversees nine approved regulators, which in turn regulate individual legal practitioners. The approved regulators, designated under Part 1 of Schedule 4 to the 2007 Act, are the Law Society, the General Council of the Bar, the Master of the Faculties, the Chartered Institute of Legal Executives, the Council for Licensed Conveyancers, the Chartered Institute of Patent Attorneys, the Institute of Trade Mark Attorneys, the Association of Costs Lawyers and the Institute of Chartered Accountants in England and Wales.
In addition, the Institute of Chartered Accountants of Scotland and the Association of Chartered Certified Accountants are listed as approved regulators in relation only to reserved probate activities. - As at 1 April 2016, the legal profession in England and Wales comprised 145,059 solicitors, 15,288 barristers, 6,848 chartered legal executives and 5,697 other individuals operating in other areas of the legal profession such as conveyancing. The UK legal sector is valued at £32 billion per annum (2015) which is up 23% in cash terms since 2012. For more information see here.