11 Jan, 2012
Firms hoping to take advantage of the so-called ‘Tesco Law’ could leave themselves exposed to major professional indemnity insurance risks, a leading independent broker has warned this week.
Alternative Business Structures (ABS), which will allow accountants, financial advisors, insurance companies and others to provide legal advice to customers, came into force on 3 January 2012,
Although initial take-up has been slow it is anticipated that further legislative changes to the legal aid process, expected later this year, could lead to a potential explosion in the number of ABS’s by 2013.
Jenny Carter-Vaughan, MD of specialist broker PI Expert (pictured), believes these new entities could leave themselves exposed to undue risk if they fail to address their insurance needs properly.
“I think it extremely likely that the Jackson reforms currently affecting the legal services market will lead to the creation of ABS’s that were not envisaged by the architects of the legislation,” she explained.
“With threats on the horizon to the payment and receipt of referral fees by solicitors and insurers, I would expect to see the formation of ABS’s which bring together solicitors, referral agents, ‘after the event’ insurers and even financial advisors.”
It is these combined ABS bodies, which are likely to require authorisation from the Financial Services Authority (FSA) rather than the Law Society, which Carter-Vaughan believes run the risk of being under-insured.
She said: “The Law Society has already said that they will not be responsible for these companies and therefore any ABS which wishes to profit from referral income will need to seek FSA authorisation.
”From a professional indemnity insurance standpoint, the ABS will still need to buy cover from approved Solicitors Regulation Authority (SRA) insurers. However, it will be important to ensure that any policy also covers professional indemnity risks arising from the fees generated by any work that is regulated by the FSA.”
Carter-Vaughan has urged anyone thinking of taking advantage of the ABS legislation to seek timely specialist advice from a recognised expert in the provision legal and financial indemnity cover.