Law Society rings the alarm bell over PII renewal
Simon Davies, Law Society president, has predicted average premium increases of 30%, with those with poor claims histories to be hit much harder.
As we have been reporting over the course of this year, the insurance market as a whole is struggling. Even before covid, solicitors’ insurance was seen to be an unprofitable area. Lloyds of London started tightening belts over a year ago. And we have seen several insurers exiting the market for that reason, which only reduces overall capacity and makes matters worse.
In the immediate wake of a global pandemic, things are clearly worse. From what the Law Society has put out there, this could be a miserable couple of months for the profession. And could even result in an uptick in firm closures.
We are also seeing new firm applicants (not just ABSs) having to jump through hoops just to get an insurance quote. Without a quote, the SRA will not even start processing an application.
It’s not all doom and gloom
We are seeing contradictory evidence (admittedly anecdotal, across a small sample) of firms renewing on terms no worse than 2019. Why might that be?
I suspect it is because the profile of firms that we are involved in have a good understanding of risk, are well run, and are committed to maintaining effective systems and controls. Which is a polite way of saying the fly-by-the-seat-of-your-pants firms probably wouldn’t be reading this newsletter!
These firms also have tended to stick with the same insurer year after year, rather than chasing the cheapest premium. There is a lot of logic in being a “known risk”.
There is also potential opportunity for expanding firms to pick up a bargain when others have to close. Files, solicitors, and entire departments may be looking for a new home. Time to take the Insolvency Practitioners out to lunch?
Half the adult population has a vulnerability, says FCA
Have a look at the FCA’s new vulnerable customers initiative. It’s a 3 minute video.
Why? Because it is equally relevant to law firms, arguably more so. And because our friends at the SRA are likely to bring in something similar at some point – they take lots of inspiration from the FCA.
In fact, we often see the SRA asking questions around vulnerability during ABS and new firm applications.
The definition of vulnerability is surprisingly wide. We are not just talking about a person’s health. Vulnerability can also stem from life events, capability and resilience.
The FCA estimates that half the adult population has at least one indicator of vulnerability. Are you as surprised by this stat as me? This could increase with the fallout from covid.
Now consider that solicitors deal with people at the most vulnerable points in their lives. It raises some critical questions, such as:
- How can we best serve them?
- How should we tailor our services?
- Do we fully understand our clients’ vulnerabilities?
- Can we turn our empathy and understanding into a competitive advantage?
If you do not have a formalised approach to client vulnerability, now is a good time to get ahead of the SRA.
- SRA guidance on firm closures due to financial difficulties – some useful case studies following from the recent guidance about informing the SRA of financial instability and closing down firms. Essentially, these case studies try to illustrate that the SRA will not necessarily swoop in and close down a struggling firm.
- Updated SRA Warning Notice – investment schemes including conveyancing – this builds on the previous warnings about too-good-to-be-true investment schemes. People are still being disciplined for getting involved where they shouldn’t (see below). It’s not just promoting these things for a kickback that’s the issue. The SRA is concerned that solicitors are failing to give proper advice about high risk schemes dressed up as safe-as-houses investments. That in itself can be a conduct issue.
- HMRC’s AML naughty list published – a list of firms that were caught out under the Money Laundering Regulations in 2018-19. Fewer than you might think?
Question of the week
“When should we make an emergency COLP or COFA application to the SRA?”
Replacing a departing COLP or COFA is often an after thought and can result in a tricky conversation with the SRA.
There is an emergency application procedure, but it is supposed to be reserved for genuine situations where you could not have reasonably made a prior application (or notification, if your newbie is deemed approved).
In all other circumstances you are expected to plan ahead – allow about 30 days for approval of a compliance officer.
- Alastair James McGregor Gilfillan struck off for forging “nightmare client’s” signature on two documents, the SDT finding that he had been dishonest and breached the sacrosanct principle to not mislead the court.
- Steven David Kinch suspended for AML failures and allowing his firm’s client account to be used as a banking facility in a scheme which he did not fully understand, and which bore the hallmarks of fraud.
- Natalia Levinzon suspended for multiple AML failures, including not recognising a high risk politician client as a PEP, and using the client account as a banking facility.
- Oliver James David Godwin fined £1,000 for two-year delay in reporting a drink-driving conviction.
- Whilst Mustafa Hassan fined £1,300 for a drink driving conviction notified within a month.
- John William Duncombe suspended for mismanagement of holiday sickness claims, effectively permitting CMCs to run cases on the firm’s behalf with little oversight. Notably, he was a ‘remote’ COLP – based in Essex, whilst the firm was in Manchester.
- Munpreet Singh Virdee struck off for falsifying SDLT returns to underpay tax (and pocket the difference). Also disqualified as a Director.
- Matthew Edward Flynn struck off for paying himself a “tax free bonus” of £2,000 from client account.
- John Martyn Lewis struck off for falsifying conveyancing documents in order to avoid a £100 late filing penalty. And in the process losing the opportunity to trade off that fabulous brand name.