Professional Indemnity Insurance (PI)
- By MICHAEL HANSON
- •
- 02 Sep, 2020
YOUR COMPLIANCE MATTERS: Professional Indemnity Insurance (PI)
Relevance: All firms.
Action required: PI Insurance premiums, policy covers and regulatory requirements
Difficulties arising from a lack of capacity, and COVID-19 issues, are impacting PI cover for Insurance Intermediaries. If you have not renewed your cover in the last few months, be warned that we are seeing broker PI premiums trebling and you will need to budget accordingly.
You should also be aware of a couple of additional issues.
The first one, arising from the IDD. is that the minimum limits of indemnity have increased slightly. The new levels are as follows and have been in place since 12 June 2020 (although the relevant FCA Handbook section, MIPRU 3.2.7R, is yet to be amended):
| Indemnity Level |
Old Levels |
New Levels |
| for a single claim: |
€1,250,000 |
€1,300,380 |
| in aggregate, the higher of: |
€1,924,560; and |
|
| an amount equivalent to 10% of annual income (this amount being subject to a maximum of £30 million). |
an amount equivalent to 10% of annual income (this amount being subject to a maximum of £30 million). |
You should check your policy to ensure the increased limits are in place (you should use the € v £ exchange rate at your PI Renewal date to calculate your cover in Euros).
The second point is more by way of a reminder and relates to the levels of excess permitted.
| If you DO NOT have client money permissions, the excess must not be more than the higher of: |
£2,500; and |
| 1.5% of annual income |
|
| If you DO have client money permissions, the excess must not be more than the higher of: |
£5,000; and |
| 3% of annual income |
If the excess exceeds the limits shown above, then you must hold additional capital as a result and the amount involved can be calculated from the table set out in MIPRU 3.2.14R.
Finally, we have been contacted by some firms where PI terms offered exclude claims arising from COVID-19 unless an additional premium is paid.
The regulatory requirement is that PI cover must incorporate terms which make provision for ‘Cover in respect of claims for which a firm may be liable as a result of the conduct of itself, its employees, and its Appointed Representatives (acting within the scope of their appointment)’.
We believe that a firm without cover for COVID-19 claims is likely to be in breach of this requirement.
Additionally, while the general view is that a successful claim for negligence, for failing to offer clients cover for Pandemic risks, may be unlikely, there are ‘Ambulance chasers’ encouraging Policyholders to make complaints against their brokers. At the very least, this could lead to you having to incur legal costs to defend yourself against potential PI claims.
So, in our view, it will be necessary to “bite the bullet” and accept higher costs in order to retain compliant PI cover.
