The SRA are now inviting views from within the legal industry regarding options to replace the SIF (Solicitors Indemnity Fund) and PSYROC (post six-year run-off insurance cover).
PSYROC is an additional cover for law firms that shut up shop without a successor practice, on top of the six-year run-off cover provided by their standard professional indemnity insurance. Up to now this has been provided through the SIF, which is a mutual indemnity scheme itself in run-off since 2000.
Since the SRA assumed responsibility for the SIF following its establishment in 2006, it has agreed on three separate occasions to extend the provision of PSYROC through the SIF due to concerns about its affordability. The latest extension, bringing it to 2022, was agreed to allow more time to consider longer-term options in relation to PSYROC.
The role of the SRA is to work in the public interest and the regulatory body is constrained by law from acting outside their regulatory remit or for the purpose of supporting or protecting members of the profession. After carefully considering all of the evidence, including analysis from an independent expert review, the SRA are now consulting on whether their regulatory arrangements should include PSYROC as a consumer protection, and what that might mean for the future of SIF.
The consultation paper sets out a scale of options for discussion; firstly: zero future provision of post six-year run-off cover. Secondly; continuing post six-year run-off cover with new funding arrangements through different models, and thirdly; arranging post six-year run-off cover through insurance on the open market
The open consultation invites views on these and other arrangements, explaining that the SRA’s preferred option is not to continue the provision of on-going PSYROC based on the ratio of cost to volume and value of claims, which is not likely to be the most efficient way of delivering the best consumer protection.
Forecasts indicate that looking over the ten years from 2023, the number of consumers that would be likely to benefit each year would only be around 30 in number, with the average value of claims paid out, including defence costs, at just over £34k. The requirement for ongoing funding from the profession is estimated to be up to £2.4m a year, and that cost is likely to be passed on to consumers which is not good news for consumers.
The consultation will also consider what should happen with the remaining reserves of the SIF if it no longer provides PSYROC, particularly that transferring the residual funds to the Law Society would allow the society to use them for the benefit of the profession.
The SRA Board have explained that they understand the issue is controversial and that there are likely to be a variety of views. The SRA are running the consultation period for 12 weeks with a closing date of 15 February 2022 and assure all interested parties are assured that the board will carefully consider all feedback before making a decision.