Written by: Keith Tully
Reviewed: Tuesday 21st January, 2014
The hot topic of professional indemnity insurance (PII) continues to rear its head in 2014 after dozens of solicitors and law firms were forced to close late last year having failed to meet insurance requirements from the Solicitors Regulation Authority (SRA).
The associated costs of renewed PI insurance premiums have sky-rocketed by up to 40% in some cases, leaving a large number of firms high and dry; unable to secure the appropriate insurance cover by the SRA deadline.
The SRA has been meticulously scrutinising solicitors and law firms in recent months to ensure they are meeting the mark, but the failed race for cover has already led to the demise of 136 uninsured firms.
At Real Business Rescue, we’ve assisted a number of law firms and limited liability partnerships (LLPs) in times of financial distress. In many cases, simple restructuring or factoring is required to provide the firm with added finance and a subsequent new lease of life. Through our expert team of licensed insolvency practitioners, we can also assist if your firm is in financial turmoil and under the threat of insolvency.
In many cases, solicitors and law firms are facing serious cash-flow issues while searching for the necessary insurance cover, as they are forbidden from taking on new business until PI insurance has been secured. Again, Real Business Rescue can talk you through a number of possible solutions to help ease your cash-flow concerns.
In October 2013, Staffordshire-based solicitors Hacking Ashton ran into financial difficulties following ‘declining fee income’ which left the firm unable to pay its indemnity insurance premium. The firm soon entered administration.
As things stand in early 2014, a two-tier market is emerging where smaller law firms are struggling find appropriate private indemnity insurance whilst the larger firms in the top 100 are having no such problems.
The marketplace for PI insurance cover is also diminishing fast after the SRA performed a u-turn on allowing unrated insurers to offer solicitors cover.
Agnieszka Scott, the SRA’s director of policy and strategy, said: “We have always resisted calls to insist that insurers have a rating for a number of very valid reasons. The most valid of these was always the fact that we understood the protections offered to clients were the same, regardless of who their solicitor was insured with.
“Recent events, however, have made us look again at this issue to ensure that clients are protected. And we have been told that there may be inconsistencies, so we are proposing on insisting on a rating for insurers on the participating list.”
If your legal firm is struggling to secure private indemnity insurance and you’re concerned about meeting SRA deadlines, law firms have been advised to seek advice from an insolvency practitioner.