Indemnity status quo expensive for lawyers & consumers
Professional indemnity insurance and compensation funds should be joined together in a single scheme, according to a Legal Services Consumer Panel report.
The scheme would set minimum terms and conditions for all lawyers’ indemnity insurance, with premiums based on the type of legal work rather than professional title. It would include a single compensation fund for clients unhappy with the service they receive.
The Panel rejected a suggestion that consumers purchase their own insurance instead of lawyers sourcing cover, claiming that this would unfairly transfer risk to clients and would be counter-productive as clients would reject firms which don’t self-insure and might risk not taking out insurance.
However, the Panel was in favour of the regulators continuing to explore options to reduce the need for lawyers to hold onto client money, such as escrow schemes. The report, Financial Protection Arrangements, which was published after a Legal Services Board request, reviews the system for compensating consumers who suffer as a result of fraud, negligence or firms becoming insolvent.
Concerns highlighted by the Panel included data protection issues between regulators and institutions such as insurers and banks, and too little research with consumers about their experience of accessing the schemes.
The Panel has also published a paper on how risk and responsibility should be divided between consumers and providers. Elisabeth Davies, Panel chairman, said: “We think the same level of protection could be delivered at a lower cost if the different regimes were united under a single scheme covering all lawyers. The status quo is expensive for lawyers and consumers ultimately pay the price.”
