The debate surrounding unrated Professional Indemnity Insurance (PII) providers for law firms continues to spark intense discussion across the legal sector. However, a look back at official statements reveals a striking shift in rhetoric from the Law Society leadership within a single nine-month window.
The Law Society’s Position: August 2013 Compared with April 2014
| Date | Summary of Des Hudson’s statement | Emphasis |
|---|---|---|
| August 2013 | Highlighted the harm caused when unrated insurers entered the market and subsequently withdrew or became insolvent. | Concern about insurer withdrawal and failure. |
| April 2014 | Explained that the absence of a rating did not, by itself, establish that an insurer was risky, noting that some established insurers chose not to obtain one. | Caution against treating all unrated insurers alike. |
Context: Commercial Interests vs. Market Realities
To understand this U-turn, one must examine the commercial and regulatory background of the period:
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The Rated Scheme Launch: In August 2013, the Law Society’s critical commentary on unrated providers directly coincided with the official launch of the Law Society’s own “A-rated” PII scheme.
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Lender Panel Mandates: Mainstream mortgage lenders increasingly tightened their panel eligibility criteria, requiring conveyancing firms to hold A-rated PII cover to remain on active panels.
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The Risk of Firm Closures: A strict exclusion of unrated insurers threatened up to 20% of conveyancing practices with panel removal, potentially driving firms into the Run-Off Cover Pool (ROCP) or out of business entirely.
Regulatory Implications for Conveyancers
As the Solicitors Regulation Authority considers whether to restrict or ban unrated insurers, conveyancing firms face a delicate balancing act. While unrated cover often provides lower upfront premiums, relying on unrated providers carries severe commercial drawbacks:
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Lender Panel Removal: Many major lenders automatically drop firms using unrated PII, regardless of CQS accreditation status.
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Insolvency Exposure: An unrated insurer collapse leaves the firm personally liable for run-off costs and outstanding claims reserves.
Conveyancing firms evaluating renewal options must weigh the short-term premium savings of unrated cover against the long-term threat to their lender panel status and financial stability.
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