INSURANCE TIMES ARTICLE OUTLINES CHALLENGES FOR SOLICITORS PROFESSIONAL INDEMNITY INSURANCE SECTOR
This week's Insurance Times article (21.07.11) "Regulation rewritten to combat ARP dodgers" reports that the Solicitors Regulation Authority (SRA) has "toughened up insurer regulation following complaints that some were bending the rules to avoid paying their fair share of Assigned Risks Pool (ARP) costs."
According to the article's author Sam Barker there are concerns that some underwriters could still find loopholes in the draft Qualifying Insurer's Agreement for 2011, seen by Insurance Times.
Barker reports that in 2010 there was a belief among some professional indemnity insurers that competitors paid less than they should for the ARP solicitors' unpaid claims.
Insurers are liable for unpaid ARP claims in proportion to their open market share of premium.
The important point the article makes for solicitors is that Insurance Times understands "the final version of the agreement has no major changes to the draft. It will tighten the rules when it comes into force for the indemnity year 2011-2012."
Lockton Companies International senior vice-president Brian Balkin is quoted: "As a whole it may even things up again, but you can bet your bottom dollar that there are going to be one or two underwriters out there looking through the rules to see how they might be able to use them in the most cost-effective way.
"There are some insurers who would say: 'There was no underdeclaration, the way we declared it was fine, and this is going to force us to declare more premium, and that is going to cost our insureds more money'."
According to Insurance Times, some of the changes are:
- Definitions and instructions around actual premium payable, aggregate excess, calculated premium payable and declaration premium payable.
- Clearer definitions over the primary layers, excess layers and limits.
- Increased power for the ARP manager to investigate qualifying insurers.
One insurer source said the SRA had changed the terms 'to prevent the distortions that occurred last year'.
"This puts things back to a level playing field," he added. "It should bring some more stability back into the market."
The article provides a good layperson's view of the tactics used by some insurers which included;
"Because not all layers of a solicitors' PI policy need to be declared to the SRA, some insurers would squeeze large amounts of premium into the policy layers that did not need to be reported. Another tactic was to sell a law firm a policy with a large excess, then sell a second infill policy to cover the cost of the excess. The infill policy did not need to be reported."
ARP costs for insurers have rocketed in the last three years, before reaching a plateau in 2010.
The article quotes a Lockton Market Insight which shows that the ARP has had an average 800% loss ratio since it was started in 2000.
To view the contents of the article in its entirety, please click on the link
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