Kumar: Market pressures
The Council for Licensed Conveyancers (CLC) has mooted requiring law firms to purchase standalone cyber-insurance as “evolving forms of cyber-risk” become more complex.
It is also considering allowing indemnity insurers to charge an additional premium for run-off cover but not avoid cover for non-payment.
A further change would move the CLC closer to the position of the Solicitors Regulation Authority (SRA) by requiring insurers to provide an automatic 60-day extension of indemnity cover when a firm fails to renew at the end of the insurance year.
The CLC announced a review of its indemnity insurance arrangements in June last year, saying the hardening insurance market had “placed strain onto the entire system”.
The CLC, which moved from a master policy to the open market in 2016, currently provides for a minimum level of cover of £2m for each claim, with integrated run-off cover.
In a consultation paper, the regulator said it was setting out proposals for “limited changes” to its PII scheme to ensure that, among other things, indemnity cover was “affordable and proportionate”.
The regulator said cyber-attacks were a “clear risk” to clients and the costs of restoring systems and data could be “very significant” to the point of threatening a practice’s viability.
Three of the law firms owned by the Simplify group, which suffered a massive cyber-attack late last year, are regulated by the CLC.
The consultation went on: “Furthermore, claims under PII in the event of a cyber incident could be very considerable if the affected practice is not able to recover any affected systems and data effectively to allow transactions to progress with minimal delay.
“We believe that it is likely that these and other evolving forms of cyber risk could become more complex and proliferate.”
The CLC said it was seeking views on whether to make policies mandatory or whether insurers “will themselves require it” without regulatory intervention.
“A third approach might be for the CLC to require a practice to have cyber cover unless it can explain why it is unnecessary.”
The CLC said its minimum terms and conditions did not include provision for a short extension of cover in the event that a practice was unable to renew at the end of an insurance year and insurers generally agreed to this on a case-by-case basis.
To “systematise the approach”, the CLC proposed an automatic 60-day extension of cover.
The MTC currently integrate run-off cover into annual PII, meaning firms do not have to pay anything more for six years of run-off cover when they close.
“Some insurers have said that this makes it difficult for them to provide competitively priced cover and it seems that the risk to the insurer of the potential need to provide run-off cover has not been priced into annual premiums by those insurers,” the CLC said.
“This has contributed to the challenge of the insurance market as it seeks to improve sustainability and profitability.”
The consultation floated the idea of requiring closing firms to pay an additional premium for run-off but prohibiting insurers from making payment a condition of cover.
“It would be the responsibility of the insurer to enforce payment of the premium, but non-payment of that premium could not result in withdrawal of run-off cover.”
This would ensure that practices that closed because of intervention, death or insolvency had run-off cover in place.
“Some insurers have indicated support for such an approach. It could encourage more insurers to enter the market by reducing insurers’ risk of exposure without additional premiums in the event of practice closure…
“However, the CLC would need to be convinced by insurers that it is an approach that they would accept for the long term.”
On excesses, the CLC proposed that it should continue to set maximum excess levels based on practice turnover. Insurers should only be allowed to depart from those levels where they could justify a higher excess level.
Last year, the regulator had to intervene after two insurers offered firms cover that did not comply with the MTC; in one case, this was a very high excess.
Sheila Kumar, chief executive of the CLC, said that “as a result of market pressures over recent years”, firms had been refused cover because of work carried out in the past “even if any notified circumstances do not proceed or they no longer undertake that type of work”.
Ms Kumar added that new licensed conveyancing firms and those transferring from other regulators found it difficult to secure quotes “in a timely way” from participating insurers.
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