Indemnity premiums for solicitors are expected to rise shortly as Insurers prepare for the renewal of solicitors’ professional indemnity policies on 1 October 2011.

With the cost of claims against solicitors having risen during the recession because of an increase in mortgage fraud, indemnity premiums are expected to rise. Law firms specialising in conveyancing are expected to be hit the hardest as a result.

The rise in Claimant solicitors’ costs will also affect price along with the changes brought in by the Legal Ombudsman. This new body, entrusted with handling complaints against solicitors, has the power to award up to £30,000 compensation which will be covered by the insurance policies.

Clare Hughes-Williams, a Partner with Morgan Cole, has extensive experience of handling claims in relation to solicitors. She says: "It is thought that this will be the most intense renewal for solicitors in England and Wales since the demise of the Solicitors Indemnity Fund and the introduction of the open market in 2000."

"One of the main sources of claims has been mortgage fraud, which was widespread in the sub-prime lending market when mortgage finance was easy to obtain. Such claims have made the market for professional indemnity insurance far more costly for solicitors than ever before with the market adopting a very cautious approach going forward."

October 2011 will see the introduction of reforms to the Assigned Risks Pool (the default Insurers for solicitors managed by the Solicitors Regulation Authority and funded by the open market) which has not been as radical as first envisaged by Insurers. In October of this year the amount of time a firm can remain in the ARP will be reduced from 12 months to 6 months. From October 2012 the ARP will be funded jointly by qualifying Insurers and the profession with liability for claims arising from firms that have not taken out insurance moving from the ARP to the Compensation Fund. In October 2013 the ARP will be replaced with a system where Insurers offer a 3 month extended policy period to firms that cannot obtain professional indemnity insurance for the following year.

Clare Hughes-Williams adds: "We all know that times are tough and Insurers have now warned the profession to be prepared. Solicitors should have already started to plan how to make their firm as attractive as possible to Insurers by demonstrating strong risk management procedures and sound financial management. It is important not to leave it until the last minute."