Insurance distribution activities, funding options, and adverse cost insurance

Regulatory developments and risk update for solicitors and law firms

Law firms involved in litigation, conveyancing, and probate will most likely be carrying on insurance distribution activities.

A number of Solicitors Regulation Authority (SRA) rules — which have been recently updated — affect the requirements for solicitors and firms regarding insurance distribution activities.

These regulations, along with increases in funding options and adverse cost insurance in contentious matters over the last ten years, mean firms may find themselves inadvertently wandering into realms governed by significant regulation.

To avoid regulatory breach, it is imperative law firms and solicitors understand the current rules and how to meet them effectively.

In general, the Insurance Distribution Direction is likely to apply to many firms and creates a significant administrative and record keeping burden.

In litigation, solicitors must provide advice to clients regarding:

  • Options for transferring costs risk in litigation.
  • The impact those options could have on the case outcomes.

Failure to advise could see a firm and/or solicitor fall foul of regulations (and possibly even risk arguments of potential negligence). Against this background, firms and solicitors should be wary of what constitutes an insurance distribution activity and ensure they are familiar and acting in accordance with the Insurance Distribution Directive, the Solicitors Regulation Authority’s Financial Services (Scope) Rules and its Financial Services (Conduct of Business) Rules.

The combination of all these factors creates significant risk and effort for the profession in meeting the requirements, along with the necessity of keeping careful records to demonstrate adherence to them.

Our team provides an examination of the requirements.