Lenders call for review of conveyancing market
Published: 1 March 2011 | Author: Bernard Clarke
Lenders are calling for a fundamental review of the conveyancing market to address the root cause of problems within existing insurance arrangements for solicitors, and an alternative approach to changes proposed by the Solicitors Regulation Authority (SRA).
Partly as a result of the number and size of claims in recent years, some firms of solicitors have found it difficult to obtain suitable professional indemnity insurance (PII). In a bid to ease pressure on the PII market, this has led the SRA to propose removing from minimum terms and conditions the requirement that insurance cover should apply to financial institutions.
Lenders recognise that reform of the current arrangements is necessary, but this should go hand-in-hand with tighter regulatory controls and a more targeted approach to the underlying causes of problems (such as fraud and professional negligence) in the conveyancing profession.
The proposal to remove insurance cover for financial institutions does not address the problem of a disproportionately high number of conveyancing claims under existing financial protection arrangements. It will have a wider impact on the legal services market, which is already undergoing significant change.
Solicitor firms that are unable to cover lenders, or choose not to do so, could face a significant reduction in their conveyancing business as lenders choose not to transact with them or keep them on their conveyancing panels. This could lead some firms to move out of conveyancing, or close down altogether, and there would be a more restricted choice for consumers.
We suggest that it would be more appropriate to introduce a more focused and clearly defined minimum set of insurance terms and conditions, dependent on the type of legal work conducted by firms.
At the moment, conveyancing firms unable to obtain insurance cover in the open market fall into an assigned risks pool, which is intended to provide a safety net for firms to rehabilitate and regain open market cover, or before firms close down. But we believe this arrangement should come to an end, with measures to ensure that clients of firms that move to close down are adequately protected. Changes are also needed to the way the solicitors’ compensation fund operates, to ensure it provides redress for clients in the event that PII does not cover claims.
Failure to pay insurance premiums or to disclose information about the extent of cover are regulatory and disciplinary issues that should be better managed by the SRA and by solicitor firms.
The SRA wants to remove cover for financial organisations from insurance terms and conditions by the beginning of October. But we believe this is too short a period for proper implementation and will cause serious detriment to solicitors and their clients. The SRA should work with all interested parties to agree a practical timetable for implementing changes once they have been agreed.
Whether or not the SRA requires PII to cover financial institutions, we believe that it is in the interests of everyone for clients to understand clearly the extent of insurance cover.
Adequate insurance and compensation arrangements for the clients of solicitors are essential if confidence in the sector is to be restored. In our view, existing arrangements are unsatisfactory for a number of reasons. There are alternatives, however, to removing insurance cover for financial organisations.
We believe that a different approach would achieve a better balance of the interests of lenders, conveyancing firms and consumers. The real threat is that these proposals shrink the availability of conveyancing to fewer firms, adversely affecting the number of high street firms that are able in future to serve local consumer needs.