PII focus | BAME firms: walking the tight rope

Last week stuntman Nik Wallenda was the first man in history to cross over the Niagara Falls on a tightrope. Yet even he had a safety harness to prevent him from dropping into the gushing waters. The ABC TV company refused to film the stunt unless he had the harness in place.

The act of obtaining professional indemnity insurance for a firm is nearly as hair raising a spectacle. During the four-month renewal window practitioners around the country are in danger of losing their sanity as they fill in a 60-page proposal forms and wait to learn whether insurers will grant their firms a 12-month lifeline.

Insurance companies, more so than the SRA, hold the life and death of a firm in the palm of their hands. They offer the safety harness and the SRA represents the TV company that will not allow a firm to practise without that harness.

In previous years the assigned risks pool (ARP) has been the emergency safety ?harness for firms that could not obtain professional indemnity insurance on the open market. A firm that could not obtain professional indemnity insurance could, up until a few years ago, stay in the ARP for up to two years. The premiums were exorbitant – 25 per cent of the firm’s annual turnover – but the ARP gave the firm the opportunity to adapt, survive and jump back into the open market. Yet that safety harness is being withdrawn and will be pulled away completely in 2013. For 2012-13 a firm can only remain within the pool for a period of six months.

This is a matter of particular concern to black and Asian minority law firms (BAME) which, according to SRA research, are disproportionately represented in the ARP.

The SRA, in the equality impact assessment of its proposal to scrap the ARP, ?indicated that BAME firms accounted for 28 per cent of ARP practices despite comprising only 11 per cent of firms overall. The same research indicated that 29 per cent of BAME firms were closed while in the ARP compared to 40 per cent of white firms. So, the ARP offered a survival route to more BAME firms then white firms. Therefore the phasing out of the ARP is likely to disproportionately affect BAME firms and will mean that a number of them, that could have survived if the ARP had been in place, will not now do so.

The fact that more BAME firms have survived after going through the ARP also suggests that the calibre of BAME firms within the ARP has been higher than the white firms inside it. In other words, BAME firms are more likely to end up in the ARP.

Anecdotal evidence supports this. In the summer of 2010 I was involved, both as chair of the Society of Asian Lawyers and as a council member of the Law Society, in conjunction with members of other minority lawyer groups, in monitoring the ?insurance renewal period.

The Black Solicitors Network had obtained a number of reports from black and Asian firms claiming that they were being unfairly refused insurance or were being granted or quoted premiums that were unrealistic and which were higher than what those firms would have paid as a premium if they had entered the ARP instead.

In many cases it appeared that the factor which had triggered that action by the insurance companies was the fact that lawyers from those firms had qualified in foreign jurisdictions and had taken the qualified lawyers transfer test. In most cases there was no evidence that the firms had made any claims.

I spoke to a friend last week who runs a small conveyancing practice. Up until a month ago I was unaware of the problems she had faced with respect to obtaining professional indemnity insurance. She qualified in Sri Lanka and then took up her career in London in the 1990s. She successfully passed the Qualified Lawyers Transfer Test and has an unblemished claims record. A few years ago she set up our own practice. This attracted a lot of conveyancing work (she had previously done conveyancing work at another firm).

Unfortunately, at the end of the firm’s first year of trading, she found that she was unable to obtain professional indemnity insurance on the open market at a sustainable level. Her firm therefore entered the ARP but, at the end of the two-year period, she managed to obtain professional indemnity insurance on the open market at a reasonable rate. Her firm is now a member of the Law Society’s Conveyancing Quality Scheme and is a success. Yet without the ARP her firm would never have survived.

When the ARP disappears in 2013 it will be replaced by a three-month window, funded by a firm’s existing professional ?indemnity insurance provider. If a firm cannot obtain professional indemnity insurance within that three-month window then it must cease to practise. This could have a terrible effect on diversity within the legal profession.

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Sundeep Bhatia is sole principal at Beaumonde Law Practice (www.beaumonde-law.co.uk)