The Council of Mortgage Lenders (CML) in its latest news & views newsletter said that existing indemnity insurance arrangements for solicitors need to be reviewed.
It reported that as a result of the number and size of claims in recent years, some firms of solicitors have had difficulty obtaining suitable indemnity insurance.
In a bid to ease pressure on the indemnity insurance market, the Solicitors Regulation Authority (SRA) has proposed that lenders should not be allowed to target solicitors to claim for damages.
Under the current system a lender, as a client of the solicitor, can make an insurance claim, however the new proposals will only allow individuals to do so.
The CML said: “Lenders recognise that reform is necessary, but this should go hand-in-hand with tighter regulatory controls and a targeted approach to the causes of problems such as fraud and professional negligence.”
It added that proposals to remove insurance cover for lenders fails to address the problem of a high number of conveyancing claims under existing financial protection arrangements.
It also said that solicitor firms that are unable to cover lenders, or choose not to do so, could face a significant reduction in their business as lenders choose not to transact with them or keep them on their conveyancing panels.
It warned that this could directly impact some firms, forcing them to either move out of conveyancing or close down altogether, restricting choice for consumers.
The CML has suggested introducing a more focused minimum set of insurance terms and conditions.
“At the moment, conveyancing firms unable to obtain insurance cover in the open market fall into an assigned risks pool, which is intended to provide a safety net for firms to rehabilitate and regain open market cover, or before firms close down.
“We believe this arrangement should come to an end, with measures to ensure that clients of firms that move to close down are adequately protected,” explained the trade body.
It has also said that changes are needed to the way the solicitors’ compensation fund operates, to ensure it provides redress for clients in the event that indemnity insurance does not cover claims.