Skip to main content
search
0

What organisation has the greatest influence on Solicitors’ practices in the UK?

If you said the Solicitors Regulation Authority (“SRA”), sorry, you’re wrong.

If you said insurance companies who provide professional indemnity insurance (“PII”), congratulations – you’ve just answered correctly the million-pound question..

Unfortunately, we won’t be able to pay your million-pound prize, because although our practice’s turnover increased by a healthy 74% last year, our PII premium increased by a staggering 221% despite neither our law firm, nor any of our world class Solicitors working with us ever having a claim on our PII!

Yes, you read this correctly.

For context, the legal industry had been expecting a potential 5% rise in insurance rates due to the strain that the pandemic had put on insurers.

However, LegalFutures took it a little further in an article written by Neil Rose of the brokerage firm Lockton, published on the 23 November 2020, telling Solicitor practices to expect increases of approximately 17%! [i]

The Law Society, with a little hindsight, extended it even further in an article written by Eduardo Reyes published on the 8th March 2021 where he stated “The Law Society is already reporting premium increases of 5-50% as ‘typical’, at a point when firm turnover is down 10% on average”. [ii]

However, a price hike from £15,000 per year to nearly £60,000 (221%) was a big pill to swallow.

50% Eduardo – if only that would have been the case – pure luxury!

But let’s go back to that million-pound question for a moment.

Why do PII companies have so much power over Solicitor practices?

Well under the SRA’s rules, all Solicitor practices, from the one-man band through to the global magic circle firms, are required to hold at least £3 million of cover or they can’t practice.

So, with the control of setting PII premiums and the ability to refuse to provide cover to Solicitors practices resting firmly in the hands of the PII companies, the SRA have in effect divested control to the PII companies, who can freely dictate, without any restrictions, which firms can continue to practice, at what cost, and which firms must close their doors.

In our view, this is a ridiculous position for an organisation whose duty is to its members (Solicitors) and the public in general to be in.

So why the massive hike in insurance premiums?

Well, we are told by the brokers that:

  • there are fewer insurance companies in the market that are prepared to provide PII cover to law firms;
  • the number of claims, especially in the residential and commercial conveyancing sectors, have increased substantially, including claims emanating from fraud by practitioners;
  • the pandemic has caused premiums to rise.

Has the pandemic really triggered so many claims that PII insurers are justified in demanding such considerable increases, or is the pandemic being used as an excuse by an industry that is well known for profiteering out of tragedy?

To our knowledge, none of the above claims have been substantiated to Solicitor practices by the PII companies to warrant the massive and totally unexpected rise in PII premiums across the industry, they certainly haven’t justified their position to our firm.

Some of the reasons provided by the brokers (yes, the ones that have received a substantial rise in their income that is generated from commissions received on the increased premiums), trying to justify the unjustifiable increases in PII were laughable:

A rise in claims brought about by mistakes!

One insurance broker stated that there was a rise in claims due to mistakes made by Solicitors whilst working from home. This excuse is particularly dubious: if the quality of Solicitors is up to standard, what does it matter where they operate from?

As a virtual firm boasting a team of over 400 highly qualified consultant lawyers all working remotely, in over 65 countries, we know the answer to this. In the last 7 years we’ve never had a single issue that could be attributed to remote working.

One of the most tenuous reasons I was given for the 221% PII increase to my regulated practice, was that “my law firm doesn’t technically have a full-time employed solicitor”. Hey but the structure is good enough for the SRA to licence us as an ABS! Is this yet another attempt for the PI companies to control who practices?

They’re right about one thing though – our firm deliberately works with lawyers on a consultancy basis, giving them the freedom and flexibility to choose how they contract with clients and earn a greater share of fees than provided by other law firms that employ Solicitors. But if it was a question of a technicality like having an employed solicitor, there was a clear way around that.

So, I asked the insurance broker, what would happen if I hired one of my consultant lawyers, whose experience spans over two decades and includes ten years as a partner with a magic circle firm. I proposed the idea of taking him on as an employee for a month during which time I would purchase my PII cover and benefit from lower rates. After a month, I’d let him go as an employee, just as I could with any employee or even a consultant, as in the main, other than the efficiencies brought about by using consultants, there is no difference between them. What then?”

As you can imagine, the response was a few flustered noises followed by a statement “the PII companies don’t understand the consultant model.” Something else was going on here.

Perhaps they were confused by the business model.

After all, the law firms they’re used to dealing with are partner-led firms operating through traditional business models and hierarchical structures, massive overheads usually including some prestigious city centre office, and a myriad of secretaries and support staff that are all remunerated by the firms colossal hourly rate client fees. To see a global law firm succeeding without the baggage of city-based luxury offices must be quite a head-scratcher – let alone a firm offering both a regulated and an unregulated service from the same highly qualified Solicitors, that provide businesses and consumers with low hourly rates.

Or perhaps it was more contrived!

By hiking up premiums, the insurance industry is giving all the power back to the largest firms who can afford to pay those inflated rates, and whose clients are large enterprises and international companies – after all, some 40% of the UK legal market is made up of international companies. A practice like ours who offers services on both a regulated and unregulated basis is not as valuable to insurers as a strictly regulated firm. Clearly, insurers don’t want businesses and consumers to have a choice in how they instruct their Solicitor. From my position, it looks like the insurers get their pick of which firms can operate and which firms are forced out of business.

For many high street practices, the Covid-19 pandemic has been devastating.

Some Solicitors practices have barely been able to keep their heads above water and swathes of high street and city firms have been forced to furlough employees. These firms aren’t winning new clients by the boatload – in fact, many have seen turnover decrease by two-thirds, and most are lucky if they are turning a profit. The combination of decreasing revenues and unprecedented increases in insurance premiums have forced a significant number of smaller practices to cease trading, as they simply cannot afford to continue operating profitably.

Who will really suffer as a result of all this?

With smaller high street practices being forced out of business due to falling revenues caused by the pandemic and significant increases in PII cover, and those surviving having to substantially increase their hourly rate fees just to keep the doors open, it’s the small business and consumers that will once again suffer increased legal fees.

For some it will mean that they cannot obtain justice, and others may have to seek advice and services from the unqualified sector, or even be forced to rely on good old Google. Either way, it is small business and consumers that will bear the brunt of the increases imposed by the PII companies.

When the Legal Services Act 2007 (“The Act”) was enshrined into law, its intention was to encourage more competition, flexibility, transparency, and choice for consumers of legal services. Furthermore, one of the key purposes of The Act was to safeguard the protection of the public generally, and consumers of legal services in particular.

Yet, with the rise in PII premiums threatening to put many SRA regulated practices out of business, consumers are left with less choice and less protection.

The Government had good intentions when setting out the roadmap for regulation almost 15 years ago in the Legal Services Act 2007. However, following the biggest health crisis in a generation, the SRA has allowed the insurance industry to take the reins and steer the profession backwards. If allowed to continue, any progress to make legal services more accessible and protect the consumer will be undone.

If the SRA is truly content with restricting small businesses and consumers from accessing quality legal services due to an inability to pay higher fees, they should sit back and do nothing.

On the other hand, if the SRA wants to stimulate market activity at every level following a pandemic that has put strain on most of the “little guys”, they should be firmly standing against the PII price hike, and doing more to support the sector.

The insurance industry cannot be allowed to hold the legal profession to ransom in this way – it isn’t beneficial to the small to medium law firms, and it certainly isn’t beneficial to small businesses and the consumer.

At present, it feels as if the tail is wagging the dog – the dog being the SRA, and the tail being the PII companies.

It’s time the SRA took back control of their one job: regulating the UK legal profession.

Thank Goodness the UK Government and the SRA allowed Solicitors to practice on an unregulated basis in an attempt to lower legal fees and improve service level.

As one of the first practices in the UK to take advantage of the Legal Services Act 2007 and run an unregulated practice in the UK, we find ourselves again fighting the industry trend of increasing fees to the detriment of small businesses and consumers.

To prove how successful the change in legislation has been in allowing unregulated law firms to practice, 360 Business Law and 360 Business Law America, which trade in over 65 countries, have announced that their country hourly rates will remain fixed for the year 2021.  In most countries across Europe, the business operates on a flat rate for commercial, contract, corporate and employment law of £155.00 per hour.

Unfortunately, due to a 221% rise in our PII, we cannot commit to locking down fees on our regulated side, so our minimum fee for a qualified Solicitor with a minimum of 5 years’ experience in their chosen specialisation has increased from £200.00 to £220.00 per hour (excl. VAT) – still a margin below the UK average we believe.

Our meeting with the Law Society:

Following my excellent meeting with the Chairman of the Law Society’s PII Committee and their Head of Policies in March 2021, it was suggested that maybe it’s time to take a little of the impractical power away from the PII companies who are inflating legal fees in the UK to the detriment of businesses and consumers, whilst putting its own members out of business.

The high cost of legal services in the UK was one of the main reasons that the Government brought into force the Legal Services Act 2007, which deregulated major parts of the profession, allowing us to create our global unregulated law firm and significantly reduce hourly rates for businesses worldwide. Thankfully, the current PII increases have not affected that side of our business, and our unregulated practice (which only uses highly qualified Solicitors, Barristers or overseas attorneys) hourly rates have and will remain static for 2021.

Suggestions to the SRA:

  • Allow businesses over £2 million in turnover to “opt out” of receiving PII cover on their work, instead having the matter covered by a simple, but fair, limitation of liability clause, in exchange for a lower premium. We know this works as we have been contracting with businesses, large and small in this manner, without PII, on the unregulated side of our business for the past 7 years, and companies are comfortable with this way of contracting, as long as the work is delivered by qualified lawyers.
  • Allow Solicitor firms to offer consumers the right to “opt out” of receiving PII cover on certain types of work, in exchange for a lower hourly rate – as long as the consumer receives advice from an independent practitioner not connected with the firm explaining what the waiver means – this happens in Employee Settlement Agreements where a Solicitor certifies that the ex-employee has received independent advice. Cap the fee chargeable for this certification at say £25.00.
  • Force PII Companies to differentiate between claims that emanate from SRA Solicitor practices undertaking residential or commercial property transactions and Licenced Conveyancers, and to set the PII premiums according to where the majority of value stems from.

In my unique experience of running both a regulated and unregulated practice, the above actions would have many positive consequences, but primarily they would:

1) lower the claims in the industry;

2) force the PII companies to lower PII as less turnover in Solicitor practices would be attributable to work covered by PII;

3) mean that smaller Solicitor practices could make profit and survive;

4) mean that the Governments aims set out in the Legal Services Act 2007 of lowering legal fees would perhaps be more achievable.

One question to the SRA – Please let us know how many Solicitors practices in the UK went out of business as a direct result of the PII increases?

Request to the PII Companies:

I am not expecting any response to this request, but it’s worth a try.

  • Please justify, providing evidence (what would you expect, we are lawyers after all) the reasons for the massive increase in claims this year.
  • The number and cost of claims emanating from residential and commercial property conveyancing that are attributable to SRA practices and those attributable to Licenced Conveyancers.

[i] https://www.legalfutures.co.uk/latest-news/pii-market-only-getting-harder-after-17-premium-increase

[ii] https://www.lawgazette.co.uk/news/solicitors-face-hardest-pii-market-for-20-years/5107687.article

Get in touch

Complete our form and we will get back to you straightaway.

    Close Menu