Following a consultation on the future of ‘post-six-year run-off cover’ (PSYROC) and the Solicitors Indemnity Fund (SIF) by the SRA, it was recently announced that the scheme will come to an end and be replaced by an arrangement run by the SRA from September 2023. In this article, we will take a closer look at the new arrangements.
What Is The Post Six-Year Run-Off Cover And The Solicitors Indemnity Fund?
In 2000, the SIF was placed into runoff when the SRA introduced changes to requirements for indemnity insurance for law firms. Under a new open market insurance arrangement, law firms were advised they must hold professional indemnity insurance (PII) with an open market insurer. The rules stated that the policy must include a provision that if the firm ceases without a successor, the last insurer must provide coverage if a negligence claim is made within six years of the firm ceasing operation (this is known as run-off cover). In addition, post-six-year run-off cover (PSYROC) provides protection in the event of claims after the six-year run-off period. This is intended to provide continuity of client financial protection and ongoing security for retired solicitors (also referred to as the ‘sleep easy’ factor).
Final Decision Made On SRA-Run Indemnity Scheme
On 14th September 2022, the SRA confirmed that the SIF will be replaced by a scheme run under its own indemnity arrangements in September 2023.
Anna Bradley, Chair of the SRA Board, stated, “We have been looking at how best to maintain consumer protection for negligence claims brought more than six years after a firm has closed in a cost-effective and proportionate way and have decided that an SRA-run indemnity scheme is the right way forward. This approach will provide that important protection for those who need it, while giving us clear oversight of how the indemnity operates, enabling us to run the scheme efficiently and realise potential cost savings.”
The Law Society has taken a positive view of the decision by the SRA to maintain consumer protection for PSYROC with the same level of cover as the SIF via its own fund. President I. Stephanie Boyce said, “This is likely to be a relief to the many members, and former members, who have been worried that the closure of SIF would mean the ending of PSYROC as a regulatory arrangement when for most there was little prospect of finding alternative comparable protection on the open market”.
What Next For The Replacement To The SIF?
The next stage is another SRA consultation (opened earlier this month) intended to narrow down the arrangements and rules for the SRA-run indemnity scheme. As the SRA points out, they need to look closer at a funding model for the scheme, whether there is a need for a “periodic levy”, and how any remaining funds will be handled when the current SIF comes to an end next year (as of late 2021, the SIF had around £20m in liquid net assets).
The Law Society has further committed to working with the SRA on the finer details of the scheme stating, “We want to be certain that the new scheme will be affordable in the long-term, providing good value for money, and maintaining the strong protections that have benefited clients and solicitors alike under the SIF.”
The announcement of a decision on the replacement of the SIF and PSYROC has been widely welcomed within the legal sector, both by current and retired practitioners. We now await the finer details of how the new SRA-run scheme will work before its implementation in September 2023. The Consultation on the rules and arrangements for the SRA-run scheme will run for 12 weeks until Tuesday 3 January 2023.
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