The insurance industry has lent its support to the Law Society’s proposal for an alternative to the assigned risks pool (ARP), as a Solicitors Regulation Authority consultation on reforms to the professional indemnity insurance (PII) market closed this week.

Chancery Lane has recommended to the SRA that the ARP be scrapped, and that if law firms fail to find cover on the open market before their policy expires, they should instead be given a three-month grace period by insurers – dubbed an ‘extended reporting period’ (ERP) – in which to either find alternative PII cover, merge, or close down.

The Association of British Insurers (ABI) said: ‘Should the best chance of change for 2011 be based on the Law Society’s recent proposal, then we will enter into discussions to make that work.’

The SRA is soon to decide exactly how to combat the escalating cost of the ARP, having already proposed a two-stage reform package for the PII market as part of its consultation.

For 2011, the SRA proposed to retain the ARP but reduce the time that firms can spend in it from a maximum of 12 months to a maximum of six months.

For 2012, it proposed to either scrap the ARP completely, or restrict the work that ARP firms can do, with funding for the ARP obtained through either a levy on the profession or on insurance premiums.

The Law Society said in response that, of the four proposals put forward by the SRA for this year’s renewals, the exclusion of financial institutions cover from the minimum terms of insurance policies has the potential to do the most damage to solicitors and consumers.

The Society said that the solution to reducing the impact of conveyancing claims is best addressed outside the PII system.

Chancery Lane also criticised the SRA’s proposals to oblige insurers to tell the regulator when a firm does not pay its premiums, and said that the SRA needs to be better at dealing with non-payment of premiums, fraud, material non-disclosure and misrepresentation.

The ABI said that changes to the ARP ‘must happen’ in 2011, and that the most appropriate outcome would be to scrap the pool altogether, or otherwise introduce a levy on the profession.

Meanwhile, a study by independent analyst Datamonitor suggested that claims against solicitors would increase and remain high for the next two years.

Datamonitor said that the cost of the ARP to underwriters is estimated at around 20% of the premiums they receive from solicitors.