Lenders welcome review of plans to cut insurance cover
Published: 9 September 2014 | Author: Bernard Clarke
We welcome the decision of the Legal Services Board (LSB) to take more time to consider proposals that potentially could have caused considerable disruption to the housing market in England and Wales this autumn. The board says it needs more time to look at proposals by the Solicitors Regulation Authority (SRA) to cut levels of professional indemnity insurance taken out by legal firms undertaking conveyancing on behalf of lenders and the public.
The SRA has put forward proposals to cut the minimum level of required insurance cover by three-quarters to £500,000, and to remove the eligibility of lenders to make a claim under the SRA’s compensation fund as a last resort. Moreover, the SRA had wanted to introduce the changes as soon as 1 October, leaving insufficient time for lenders and others to adjust – and potentially jeopardising housing transactions.
The SRA was compelled to put its proposals to the LSB (as the overarching regulator) but many commentators had expected them to be approved as submitted. The SRA only announced its plans in June, and it had been thought to favour implementation on 1 October because a number of legal firms were due to renew their insurance on that date and would be able to take out more limited – and therefore cheaper – cover if the plans were approved before then.
The SRA argued that its proposals only stipulate minimum levels of cover, and that it had recommended that legal firms should take out adequate insurance to cover their risks. Lenders were therefore anticipating that firms working for them as conveyancers would need to take out more comprehensive cover, given the levels of risk that conveyancing can present. But there was no guarantee that legal firms would do so, and no reliable means of monitoring their decisions.
Lenders welcome the LSB’s intention to take more time to consider the proposals. It means that insurance requirements will not change from the beginning of next month, as feared – an outcome that would potentially have required lenders to make major changes to the panels of firms they use for conveyancing, in order to manage their exposure to risk. That would also have disrupted housing transactions, with risks that some deals would have broken down as a result of delays or other complications.
We urge the SRA to take account of lenders’ concerns over their plans and take time to review evidence of their potential effects. We do not believe that reducing the minimum level of professional indemnity insurance from £2 million to £500,000 will be adequate for the conveyancing market. Many claims could be for significantly larger amounts than this.
We will continue to argue against these proposals, and will be responding to the SRA’s call for evidence in due course.