The lawyers’ professional indemnity (PI) market suffers from too much regulation and too little competition, according to the Productivity Commission.

The commission’s Access to Justice Arrangements report recommends an independent national review, and suggests opening the market could drive down costs and help consumers afford legal representation.

Currently, legal practitioners are required to hold approved PI cover, and in many jurisdictions this is provided through a captive insurer.

In NSW and Queensland a subsidiary of the relevant law society insures solicitors (LawCover Insurance and Lexon Insurance respectively), while in Victoria it falls to the Legal Practitioners’ Liability Committee.

In other jurisdictions law societies and bar associations negotiate with insurers, often settling on a “master policy”.

The problem, the commission says, is that the resulting lack of competition leads to higher prices for the cover. These are then passed on to consumers, making access to justice less affordable.

And it says the approach is unnecessary too, given the Australian Prudential Regulation Authority already oversees insurance products.

Scrapping profession-specific requirements would cut duplication, saving time and money.

Some legal practitioners welcome the suggestion as a way to reduce the high cost of PI insurance – but others fear it would result in a degradation of quality.

“They argued commercial insurance providers in a deregulated market could pick and choose firms with the lowest risk profiles and reduce coverage to a minimum,” the commission’s report says.

The Law Society of NSW says sole practitioners, small law firms and lawyers operating in high-risk areas could find it difficult to obtain affordable insurance in a deregulated market.

Many believe the UK, which moved from a single to multiple-provider model a decade ago, has seen quality and availability of cover decline significantly and average costs increase.

However, the commission says it “does not accept the proposition that a single-provider model is inherently superior to a multiple-provider model”.

It insists competition leads to increased innovation and efficiency and should not be restricted by regulation unless the benefits of doing so outweigh the costs.

The commission recommends the Law, Crime and Community Safety Council carry out an independent review from a national perspective.

The review should focus on whether current restrictions on competition are in consumers’ best interests, and whether current minimum standards are consistent with principles of good regulatory practice.

The Insurance Council of Australia (ICA) is coy on the issue, telling insuranceNEWS.com.au that it supports calls for an independent national review.

“ICA agrees with the Productivity Commission that it is important to periodically review regulation, especially where it restricts competition,” a spokesman said.

David Lee, former president of the Australian Insurance Law Association and partner at law firm Lee & Lyons, told insuranceNEWS.com.au there may be a case for opening up the market.

“You can clearly articulate an argument for more competition, but there would need to be some modelling done to see whether it would result in savings,” he said.

“LawCover does a very good job. It’s not its fault it is a monopoly, and there may be an issue with continuity of cover if people start switching between insurers.”