SRA proposal to amend the minimum terms

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The announcement by the SRA of changes to the Minimum Terms could not be more ill-timed. There should be no suggestion of adopting these revised terms at renewal in September 2014. Firms must take care to discuss the position with their advisers. Participants in the insurance market cannot assess the proposed terms and resolve their positions in time to introduce the changes at renewal this year. At best there will be some sort of knee jerk reaction and a last minute fight by smaller practices to obtain cover late in the day – again!

The outcome envisaged by the SRA will not materialise. The proposed limit of indemnity of £500,000 for smaller practices is where the majority of claims activity takes place. Therefore, there would be no reduction in claims activity, and no reduction in premium, but there would be many firms left exposed with too low a limit, which could adversely affect the financial stability of firms and their owners.

The cost of topping up the limit from a starting point of £500,000 as opposed to the current £2m will be significantly more expensive.

There is talk of major lenders demanding higher limits, failing which they will exclude small firms from their panels, along with firms’ bankers looking for more security, particularly if the £500,000 limit is in the annual aggregate rather than being available on an each and every claim basis.

The way to reduce premiums is to reduce the scope of the cover not the limit of indemnity, by allowing insurers to reject claims or policies where fraud or deception is involved. It is about time the SRA took this aspect more seriously, which they now appear to be doing, albeit many years too late.

An article we’ve prepared on the matter, which appears in the June issue of Manchester Law Society’s ‘The Messenger’, is available to download and read here.

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Martin Jackson

Tel: 0161 237 7728

E-mail: martinj@m-f-l.co.uk

Karolyn Judge

Tel: 0161 237 7734

E-mail: karolynj@m-f-l.co.uk