Smaller UK law firms and one-man-band legal practitioners pay far more for professional indemnity insurance (PII) than larger counterparts, with conveyancing accounting for the largest number of claims across the sector.
According to the new figures published by the UK’s Solicitors Regulation Authority (SRA), the smallest law firms in the sector pay much more in PII cover as a percentage of turnover.
Sole practitioners, for example, pay seven per cent of annual turnover on PII cover on average, whereas two-to-four partner law firms pay an average 5.5 per cent.
Five-to-ten partner firms pay a lower rate of 3.2 per cent of annual turnover on Pii on average, compared to law firms with between 11 and 25 partners which pay roughly 3.9 per cent.
The figures, collated by the SRA between 2004 and 2014, revealed that the owners of small law firms were “particularly affected” by the costs of an indemnity insurance policy, which, the report concluded, contributed to “the single highest cost of regulation” in the sector.
In a statement, SRA policy director Crispin Passmore called for further flexibility for law firms to provide “adequate and appropriate cover without spending more on premiums than is really necessary”.
“That could mean lower costs for firms, and therefore lower costs for the users of legal services,” Passmore added.
The SRA recently set out three central reforms to PII which would aim to strike the right balance between consumer protection and an accessible legal services market.
The SRA deemed it essential that the market remained profitable for sole practitioners, created better incentives for more innovative insurance products to be made available to customers, and targeted the causes of negligence claims through a broader range of responses.
Passmore stated that the legal sector had a responsibility to provide a better environment for smaller firms to operate within.
He added: “We have a very diverse profession with solicitors and firms practicing in many different ways. Regulation needs to respond to and support this variety.”
Sign up to our newsletter to get the latest from Business Advice.