As part of becoming a regulator of law firms, it is essential for us to ensure that firms regulated by us have PII in place. Feedback from consultations and the insurance sector led us to go down a compulsory scheme of open market insurance.
The compulsory PII must meet our minimum terms. These are broadly similar to those of the Solicitors Regulation Authority. For example, insurers have agreed to provide an extended indemnity period which provides an additional 30 days’ cover for a firm seeking alternative qualifying insurance. If unsuccessful in finding alternative insurance, the firm has a further 60 days during which it can work in connection with existing instructions only before it must close. When closing, provisions must be made to take six years’ run-off cover.
The choice of insurers is restricted to ‘qualifying insurers’ , who have committed themselves to the terms of the CILEx Qualifying Insurers’ Agreement. This obligates insurers to abide by minimum terms prescribed by us. It also requires insurers to provide a minimum of £2m cover per firm.
We were one of the first regulators to initiate a rated pool of insurers. At the time of coming up with our scheme, we were aware of dramatic insurance failures, such as Quinn in 2010, Lemma in 2012, and Balva in 2013. We listened to stakeholders and felt that unrated insurers posed a risk, which if it materialised could ultimately affect our regulated firms. We were not prepared to subject our regulated firms to this risk. Our scheme requires qualifying insurers to have a credit rating of B+ or above.
Before being authorised, firms must demonstrate that they have or are in the process of obtaining a policy of insurance from a qualifying insurer which meets our minimum terms. In the meantime, we will issue the firm with provisional authorisation. This shows insurers that the firm has gone through our risk assessment process and will be authorised by us as soon as it puts PII in place. Provisional authorisation does not enable a firm to provide legal services until it has obtained PII cover and received an authorisation certificate from us.
We have worked hard to make the process of obtaining insurance easier for firms regulated by us and introduced a single insurance form. All our listed qualifying insurers should provide quotes for insurance from this form. This saves firms and brokers filling out multiple application forms. The insurance form is on our website.*
To avoid a scrum for insurance, we introduced a flexible renewal date. We felt that this would create a less congested market and allow insurers more time to look at individual firms and negotiate pricing.