A LEADING specialist professional indemnity insurer for solicitors has warned members it may not be able to provide indemnity next year in light of a big rise in claims and the fact that underwriters are paying out more than they receive in premiums.

In a letter circulated to members in recent days, the Solicitors Mutual Defence Fund said it was awaiting final decisions from reinsurance underwriters for next year after the Law Society relaxed its indemnity regulations.

“This delay is causing huge concern in the profession because, as of today’s date, I cannot confirm whether we can offer indemnity for the coming year,” fund chairman Laurence Shields said in the letter.

“It is the objective of your fund to stay in business. As I have often said, we were set up by solicitors for solicitors. It would only be if the circumstances are unavoidable that we would have to cease business.”

Established in 1987, at a time when indemnity premiums on the open market were rising significantly, the fund was set up in response to a doubling of premiums the previous year “with little or no notice”.

In the year to November 2008, it had a total membership of 1,306, representing 3,761 lawyers.

While new Law Society regulations reduced the minimum cover required to €1.5 million from €2.5 million, indemnity premiums are still set to rise significantly in the coming year.

Many solicitors fear the premiums may yet triple, a rise that would follow a doubling of premiums this year at a time when their businesses are under acute strain due to recession and the property collapse.

When contacted, Mr Shields said the fund and its brokers were in negotiation with reinsurers. The delay in securing reinsurance arose because the change in the society’s regulations was made only on August 27th, he said.

Mr Shields said he was confident that the fund would be in a position to provide indemnity next year. “Our brokers, I believe, are confident,” he added.

However, he accepted that premiums would rise steeply if the fund was in a position to offer indemnity next year. “There undoubtedly will be a very substantial increase in contributions to the fund.”

Mr Shields acknowledged in his letter that members “do not need to hear this news” in the current economic climate.

“But, rather than waiting any longer, I wanted to let all the members know what they are likely to be facing later this year. If we do manage to surmount the very difficult obstacles in our way, the renewal amounts will be greatly in excess of those quoted last year.”

The fund said it would not be offering to renew indemnity to certain members in the coming year due to their bad claims history. In so doing, it aimed to provide a system for insurance which was fair and just to all members.

In addition to reducing the minimum indemnity cover required, the new Law Society rules allow for the exclusion of cover in the case of fraudulent misrepresentation or non-disclosure and for the removal of cover for certain undertakings to financial institutions in commercial conveyancing.