Professional indemnity insurance (PII) protects consumers’ and practitioners’ interests and builds public confidence in buying legal services. It is intended to cover lawyers and their employees for the costs of compensating clients for damages or loss caused by work-related mistakes.
Previous LSB research has highlighted concerns about PII, which is an important but costly aspect of doing business. It has been found to affect decisions about entry to the legal services market, mobility and innovation within it, and exit from the market.
As regulatory restrictions on the supply of PII are likely to have implications for legal services practitioners, consumers and approved regulators (ARs), we looked at one aspect of this: AR restrictions on practitioners’ choice of PII provider.
We have reviewed the different approaches used by ARs and the rationales put forward in favour of them. Our work has taken a first principles approach and examined the question of choice of insurer against the regulatory objectives and better regulation principles – the duties of ARs under the Legal Services Act – and also general competition law.
- Our analysis of the current arrangements, which was published on 15 July 2016, is available here.
- A summary of our review is available here.
- Our policy and legal analysis has been complemented by independent economic advice from the Regulatory Policy Institute, which is available here.
We were interested in understanding if setting limits on choice of PII insurer is necessary and, if so, what the least burdensome approach is.
Our review and the Regulatory Policy Institute’s advice has produced a list of questions that we suggest ARs should answer (and data to help do this) to ensure that they have identified the best regulatory response for their respective regulated communities. These include that this issue spans the market for regulated legal services and is not specific to one AR. As such, it is important that these market-wide perspectives are not overlooked.
We found that more evidence is needed to support arguments that are made in favour of the different models currently used for supplying PII. This is relevant since ongoing developments and changes in the legal services and PII markets all point to ARs needing to regularly review any restrictions they impose in choice of PII provider to stay assured that those restrictions remain fit for purpose.