In introducing this requirement, the Bar rejected a proposal for a Master Policy, opting instead for an open market solution with the insurance being provided by various insurers. By 1985, however, the number of insurers offering insurance to the Bar had shrunk to only two, only one of which was willing to provide a quotation to all chambers. Furthermore, although insurers had agreed to adopt a common policy wording, premiums for each barrister were entirely at the discretion of the insurers and any claim (or even the threat of a claim) resulted in very substantial (sometimes in excess of 1000%) increases in premium. Not only were premiums increasing but also there was no transparency as to how they were calculated. Furthermore, insurers could accept or reject barristers without reason. Finally, barristers were not receiving quotations from insurers until the day before the expiry of their existing cover, which was causing immense uncertainty and rendering it impossible to obtain alternative quotations. In short, the supposed benefits of open market competition for the provision of insurance had proved to be illusory.
Responding to an urgent need for change, the Bar Council resolved at its Annual General Meeting in October 1987 to form Bar Mutual as the compulsory provider of primary layer professional indemnity insurance to the self-employed Bar in England and Wales. Bar Mutual has insured the self-employed Bar since April 1988. Its mission, then and now, is as follows:
- To protect the interests of consumers by ensuring that there will always be a solvent insurer available to pay valid claims against members of the self-employed Bar. It is noteworthy that, soon after Bar Mutual was established, a commercial insurer participating in one of the two prior schemes became insolvent leaving those in that scheme partially uninsured.
- To protect the interests of consumers by ensuring that access to the maximum number of barristers judged fit to practise by the BSB is not restricted by the vicissitudes of the insurance market cycle.
- To protect the interests of both the self-employed Bar and consumers by ensuring stability in the insurance arrangements for the self-employed Bar. Collective self-insurance allows rates to be set across the insurance cycle so that premiums collected in years of low claims activity can ameliorate the increase that would otherwise be required in years of high claims activity.
All these goals have to date been achieved, in marked contrast to the turmoil that has in recent years beset the market for professional indemnity insurance for solicitors (the solicitors’ mutual indemnity insurance arrangements having ceased in 2000).
Bar Mutual response to BSB Consultation on Entities In reply to the Bar Standards Board (BSB)’s Third Consultation on the Regulation of Entities’ issued in August 2010, Bar Mutual had confirmed its intention to continue to provide high quality and fairly priced insurance cover to all entities and self-employed barristers regulated by the BSB. In response to the BSB’s 2012 Consultation, given the uncertainty that had emerged as to the scope of the activities of multi-person entities that would be regulated by the BSB, Bar Mutual stated as follows:
“Bar Mutual is open to the possibility of providing professional indemnity insurance to entities regulated by the BSB. However it is concerned that some entities may not present risks compatible with those presented by the self-employed barristers Bar Mutual is required to insure and so is likely only to wish to consider applications for insurance from such entities on a case by case basis.”
Bar Mutual has indicated to the BSB its willingness to find a solution that would enable it to insure all such entities (eg by seeking reinsurance for any aspects of the activities of multi-person entities that presented risks which were not compatible with those presented by self-employed barristers). To date, Bar Mutual has yet to receive from the BSB a definitive set of criteria as to the scope of activities by a multi-person entity that would allow it to fall within the purview of the BSB. Bar Mutual has throughout expressed its willingness to insure single-person entities (ie self-employed barristers who choose to practise through their own entity).
Bar Mutual has made it clear to the BSB on a number of occasions, however, that all entities regulated by the BSB which provide barrister-like services and which Bar Mutual would therefore regard as presenting risks which were compatible with those presented by self-employed barristers would not only have insurance made available to them by Bar Mutual but should also be obliged to insure with Bar Mutual, as is presently the case for the self-employed Bar. As Bar Mutual has explained to the BSB, firstly this would create a “level playing field” for the provision of professional indemnity insurance to those offering the same type of legal services to the public, regardless of the business model through which the services were provided, and secondly the absence of any compulsion to insure with Bar Mutual could jeopardise the long-term future of Bar Mutual. This is because commercial insurers might cherry-pick all the best risks (i.e. those generating the highest premiums and with the best claims records) with “loss-leader” premiums (ie rates artificially below Bar Mutual’s) in an attempt to build market share and corner the market, leaving Bar Mutual as insurer of last resort.
The strategy of commercial insurers would no doubt be to force Bar Mutual to cease operating, enabling them then to increase their premiums.
The current situation
On 28 November 2014 the BSB secured approval from the Legal Services Board to authorise and regulate entities. It started accepting applications to approve entities in January and will authorise them from April 2015.
Unfortunately, the BSB Handbook does not currently include a requirement for entities (whether single person or multiperson) to insure with Bar Mutual. Nonetheless, as regards Bar Mutual’s 2015 policy year which will commence on 1 April 2015, Bar Mutual’s position (subject to satisfactory finalisation of the BSB’s Minimum Terms of Cover for entities) is as follows:
- Bar Mutual will provide primary layer professional indemnity insurance at the 2015 renewal to all single person entities on the same basis as if the individual behind the single person entity were seeking cover as a self-employed barrister.
- Bar Mutual will provide primary layer professional indemnity insurance at the 2015 renewal to BSB-regulated multi-person entities on a case by case basis, with the intention of providing insurance to barrister-like entities.
- Bar Mutual will not provide run-off cover to those of its self-employed barrister Members who elect to establish any entity that will be regulated by the BSB where that entity does not purchase its primary layer of professional indemnity insurance with Bar Mutual.
If the BSB is unable to secure a change to the provisions of the Handbook to extend the requirement to insure with Bar Mutual so that it applies to these entities (such a change requiring the approval of the Legal Services Board), it is far from being fanciful that, faced with the prospect of Bar Mutual being left as, in eff ect, insurer of last resort, the Board of Directors of Bar Mutual may in due course conclude that the protection of the Members’ interests would be best served by winding up Bar Mutual. In any event, if there is no such change, Bar Mutual will have to review whether, and if so on what basis, it will continue to be in the interest of its Members to insure entities at the 2016 renewal, which must include reserving the right to adopt a selective approach to the insurance of entities and taking into account the individual claims records of each applicant, which of course is not currently the case.
It is therefore critically important that the BSB amends its Handbook during 2015 so as to require all single and multiperson entities offering barrister-like services to place their primary level of professional indemnity insurance with Bar Mutual.