Solicitors' inability to pay insurance cover will likely lead to mergers, writes CAROL COULTER
THE DEADLINE for renewal of professional indemnity insurance premiums, compulsory for all solicitors, is December 1st. Yet many solicitors have not yet received a quote, and are awaiting it anxiously. Earlier this year it was rumoured that this insurance could rise by 200-300 per cent.
In addition, the self-employed must pay their 2008 income tax next week if they are paying online. The amount they pay will depend on the amount of pension contribution, if any, they make for 2008. That will depend on the money at their disposal which, in turn, depends on what their insurance premium will be.
The main insurer is the Solicitors’ Mutual Defence Fund (SMDF), which covers about 60 per cent of firms. It was set up by solicitors in 1987 in response to the high level of premiums from commercial insurers, and had the effect of reducing these premiums as well as offering a tailor-made service to solicitors.
For many years the premiums were modest. However, this has changed in the past few years following a number of big claims arising out of malpractice by solicitors such as Michael Lynn. And, like other insurance companies, the SMDF lost a lot of money in the financial markets.
The crisis over indemnity insurance led to changes in the Law Society’s regulations concerning cover, outlined in this month’s Law Society Gazette. This, said the SMDF’s executive director, Laurence Shields, has led to a delay in quotes being issued. He said he hoped they would be issued shortly.
Asked what the increase in premiums was likely to be, he said each proposal was being considered individually, and quotes would be issued on that basis.
The director general of the Law Society, Ken Murphy, said the proposal form was much more detailed this year, requiring solicitors to dig out files and analyse their transactions over years. It includes questions about the individual’s practice, including the areas of work done, in order to estimate the level of risk. There are some concerns that this could lead to solicitors with certain types of practice being priced out of the insurance market.
Another concern is that the requirement for each solicitor in a practice to be insured could lead to jobs cuts. If the practice has been trying to keep staff on despite the recession, even on reduced hours or less pay, as many have, this will prove costly.
The issue has led some solicitors to question the compulsory aspect of insurance cover. A proposal to make it voluntary, and to inform clients that any claim of negligence would have to be made against the individual solicitor’s personal assets, was put to a meeting of the Dublin Solicitors’ Bar Association at the end of September.
Another proposal, to allow solicitors to incorporate as limited companies, was accepted by the Law Society’s agm last week. However, this requires ministerial approval.
These changes, along with the prospect of some solicitors being unable to practise due to a lack of insurance, all signal major changes in how the the solicitors’ profession operates, with likely mergers of small firms.