When looking for home, car and pet insurance, we often use comparison sites to find the best price and coverage. This approach is perfectly suitable for consumers of these products. However, the same approach may not be suitable for lawyers when looking to obtain legal indemnity quotations.
Why? Because a lawyer is bound by The Insurance Distribution Directive (IDD) and the associated rules imposed by The Financial Conduct Authority (FCA) and the legal regulators. You may still choose to shop around for multiple legal indemnity quotes. However, if you do there are several factors to consider when making comparisons and especially if you are recommending one quote over another based solely on price.
What does IDD mean for law firms?
We have worked with law firms for over fifteen years to provide legal indemnity insurance. From speaking to conveyancers and lawyers, we recognised a level of confusion around IDD and lack of support for law firms and Insurance Distribution Officers (IDOs). A common, and somewhat concerning response was “we get just a few quotes then go with the cheapest”.
In order to get to the bottom of IDD, we instructed two legal compliance companies to conduct independent research on the legal requirements set out by the FCA. What came out of the research made for some very interesting reading. It’s something all IDOs and law firms should be aware of when it comes to arranging insurance. The penalties for non-compliance can be severe – from fines and regulatory sanctions, to the invalidation of policies sold outside of IDD regulation.
What does IDD say about the need to obtain multiple quotes?
In short, nothing. There is no reference to a need to obtain multiple quotes – it’s nowhere in the FCA, Solicitor’s Regulatory Authority (SRA) or Council of Licenced Conveyancer’s (CLC) requirements. It’s a myth to say that obtaining multiple quotes is enough to satisfy the requirements of IDD. The independent research has shown that the requirements on IDD are more onerous, with a focus on the need to ensure you meet the client’s demands and needs rather than focussing on price. In particular, if you provide a personal recommendation, further due diligence is required. For example, you must ensure you conduct a “fair and personal analysis of the market” considering quotes beyond those with standard policy wording from the one comparison site.
But we have a disclaimer to say we don’t provide a personal recommendation
While you may have a standard disclaimer about personal recommendations, can you be sure that you are not still providing one? For example, do you obtain multiple quotes for a client and then actively select one over the others and recommend this to your client as the best option to proceed with? Also, what is your basis for selecting one quote over another? If it’s just price, have you fully considered the client’s demands and needs under IDD? Have you considered insurer rating, policy coverage, risks, exclusions and obligations of the insured, or only looked at price?
So how can law firms ensure they comply with IDD?
The independent research on IDD revealed that the best route to compliance for a law firm is to work with a compliance-first provider. In a recent survey, 82% of law firms said they didn’t know whether they were on the FCA Exempt Professional Register (EPF) – a key IDD requirement for non-FCA authorised firms. As a matter of course, CLSQ check that all our clients are on the EPF Register.We also check that our law firm clients remain on the register via our FCA integration. Another key IDD requirement is to appoint a knowledgeable IDO. Only 2% of IDOs said they received training and support from their Legal Indemnity provider. Our CLS IQ Academy has specific training content around IDD, title/legal indemnity and estate administration risks for IDOs and anyone within the firm responsible for arranging insurance. The overarching message of IDD is to meet the customers’ demands and needs. CLSQ offer a unique way to do this instantly online via our bespoke-your-quotes service, an ability to customise Statements of Fact according to the customer’s requirements.
The next time you need a Legal Indemnity quotation, bear in mind that “getting a few quotes then going with the cheapest” may not be IDD compliant. By retrieving more than one quotation, you need to be mindful of the extra responsibilities this could bring with it.
Lianne Goddard
Chief Commercial Officer, CLSQ
Find out more about IDD, with the opportunity to register for our webinar with an expert speaker, here: https://bit.ly/3jnapsl
For access to the independent research, a guide for IDOs and more exclusive training content, sign up for free to access the CLS IQ Academy: https://www.clsl.co.uk/sign-up
This article was submitted to be published by CLS Property Insight as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.
