The Solicitors Regulation Authority has unveiled plans to cut minimum conditions of PII cover to help small firms find the right level of protection.
The regulator will reduce the level of mandatory insurance cover to £500,000 and reduce run-off cover to a minimum of three years for closing firms.
The handbook currently requires firms to obtain compulsory insurance cover of £2m, with run-off cover set at six years.
The SRA is also proposing to limit compulsory PII cover to individuals, small and medium-sized businesses with turnover up to £2m, charities with less than £2m income, and trustees in charge of assets worth less than £2m.
'The change proposed here will focus protection on the least sophisticated consumers,' said the SRA's consultation. 'It will promote competition by reducing costs and providing firms with a choice as to the level of cover provided to consumers outside the minimum requirements.'
The consultation coincides with the SRA's decision to drop plans to prohibit solicitors from going to unrated insurers for PII cover.
The SRA says there is nothing to prevent firms choosing to obtain higher or broader levels of cover for clients, particularly commercial clients - or indeed for clients to agree insurance requirements with their law firm.
'These proposals are designed to ensure that regulation is proportionate and targeted,' added the consultation. 'They should assist small law firms in providing the right level of protection to their clients without incurring additional expense that drives up their costs and thus prices to consumers.'
The SRA said the minimum compulsory cover is above what is needed for firms with a six-figure turnover.
But it rejected the suggestion that PII cover should be optional for firms to offer on a case-by-case basis to clients, indicating that its proposals are a 'middle ground between the most cost reductive option and the current very high level of protection'.
With that in mind, the an additional outcome would be written into the handbook stating that firms 'assess and purchase the level of cover that is appropriate for your current and past practice'.
The consultation ends of 18 June with the SRA hoping to have reforms in place by 1 October.