Regulator advises abolishing ARP

PRIMARY LEGAL watchdog The Solicitors Regulation Authority (SRA) has suggested winding down the assigned risk pool (ARP), which provides insurance to law firms unable to find it themselves in the open market.

In one of three proposals set out in a consultation document, the SRA advised the ARP should cease to provide new insurance policies from the annual renewal date of 1 October 2010.

Eligible firms already in the ARP would be permitted to remain for the following indemnity period 2010-2011, but firms unable to secure insurance would effectively be required to close.

Two alternative policies proposed would either see all new firms without an insurance record refused an ARP policy, or the maximum period a firm can take advantage of the scheme reduced from two years to one.

However, the SRA makes clear that the first of these proposals is its “firm recommendation”.

The other options would “effect some small improvement but…would not be sufficient to address the problems”, the document states.

In 2000 the Law Society Council decided to replace the Solicitors Indemnity Fund (SIF), which provided cover to all law firms regardless of their practice areas, with a scheme wholly reliant on the commercial market. The ARP is underwritten by all qualifying insurers and provides temporary cover for firms in difficulty, while enabling the SRA to assess the scale of risk they pose.

However, the SRA claims this arrangement is now “putting a very good scheme under stress” and is calling for “urgent action” to address it.

“From the profession’s point of view there is concern that the costs of the ARP are passed on to the profession through higher premiums, and that too many firms are surviving because of the ARP, when they should in fact have closed,” it says.

The consultation closed on 12 February 2010, while the SRA is simultaneously undertaking an equality impact assessment to ensure any new rules implemented are non-discriminatory.