The Solicitors Regulation Authority has reopened the vexed debate about minimum cover for professional indemnity insurance – and mooted the idea of ditching a minimum altogether.

Last year the regulator’s proposal to cut compulsory cover to £500,000 from £2m was blocked by the Legal Services Board amid concerns about client protection.

But after undertaking new research, the SRA said in a wide-ranging discussion paper published last week that it remains in favour of lowering the limit to provide more flexibility and lower costs.

After changing conduct rules to require firms to assess and purchase appropriate PII cover, the regulator said one option now is not to have a minimum.

‘This would maximise opportunities for firms to negotiate limits most appropriate to their business activities, with associated reductions in cost,’ the paper says.

The SRA said it has received ‘clear advice’ from some insurers that reducing the minimum will cut premiums.

Other notable suggestions in the paper include reducing run-off cover from six to three years and a ‘hardship fund’ for smaller firms deterred from closing by the cost of maintaining premiums.

Insurers are currently obliged to cover firms for six years after they close even if they are unable to collect any premium due. The default rate on run-off premium is around 50%, meaning the cost of providing run-off cover is factored into premium rates.

‘We have been told of cases where sole practitioners (who are, for example, unwell and [seeking] to avoid financial failure) have been forced to keep their businesses going because they cannot afford the run-off premium,’ the paper says.

It adds that one option to mitigate this problem may be a centralised fund, paid for by contributions from the profession, to which firms could apply for help with payment.

The Law Society said it will consult solicitors on the paper.