Thursday 8th September
Q3 PI update: professional indemnity for insurance brokers
Insurance brokers are skilled at placing professional indemnity insurance (PII) for their customers, but what do they need to consider when arranging cover for themselves?
Keeping on top of the latest legislation and regulation is common practice for insurance brokers, so how can using a broker to purchase PII help? The FCA’s Business Interruption (BI) test case has put brokers’ PII in the spotlight and highlighted the importance of having accurate PII cover. The FCA recently said they would suspend trading permissions for firms without the necessary PII cover to cover claims for which they are liable.
BI cover: Covid confusion
While the FCA’s BI test case clarified the kind of BI claims insurers cover, some brokers remain confused about who needs Covid-19 cover built into their PII policies and who doesn’t. The requirement for PI Covid cover depends on the trading activities of each firm. Some will not be exposed to the risk of Covid BI claims and therefore won’t require this additional cover. It’s essential to use a broker that thoroughly assesses the risks faced by that firm over the next 12 months
The changing legal landscape
The growth of UK-based class actions presents additional risks to the broker PII market. The outcome of cases such as the forthcoming professional negligence class action facing insurance broker Pound Gates could have far reaching implications for this market. A class action of nurseries is suing Pound Gates for professional negligence because they cannot claim on the BI cover Pound Gates arranged for them. The nurseries cannot claim for losses they suffered during the pandemic closures. Around 100 nurseries are expected to be involved in the class action by September, amounting to an estimated £10m claim. Pound Gates was the preferred insurance provider of the National Day Nurseries Association and recommended cover underwritten by Ecclesiastical.
Valerie Lawrence, Head of Professional Indemnity, said:
“PII premiums have stabilised, but the state of the PII market remains fluid. Brokers with a good risk management strategy are more likely to secure the best cover at a competitive price.”
Regulatory risks are another factor considered by insurers. The FCA recently fined Citigroup Global Markets Limited (Citigroup Global Markets) £12.5m for failing to properly implement the Market Abuse Regulation (MAR) trade surveillance requirements relating to the detection of market abuse. To prevent gaps in cover, working with a broker that fully understands the full spectrum of business risks is essential.
Brokers’ PII: Things to consider when buying PII
- Build a long-term relationship with your insurer – Premiums have stabilised, but as the last few years have shown, circumstances can change. Brokers with strong PII insurer relationships are more likely to have a good track record of managing both soft and hard market conditions. Other benefits could include options to help manage cash flow, such as an interest-free instalment payment facility.
- Good communication – Most brokers understand the need to arrange PII well before renewal. Using a broker who can deliver an effective and timely quote is essential. Arranging accurate and timely cover relies on good communication regarding the risk so that underwriters can decide on each unique risk and provide the right level of cover.
- Check policy and claims limits – It’s essential to check the cover levels for the different types of projects and risks. Also, check the basis of that cover, e.g., any one claim (AOC) cover for unlimited claims up to the maximum amount provided or ‘aggregate’ (AGG) the total amount of cover for all claims made under the policy.
- Leverage the benefits of insuring all covers with one insurer – In some circumstances, placing several covers under the same policy might be advantageous. The benefits of arranging a single portfolio of covers with one insurer is simpler and may also minimise the risk of gaps in cover.
- Claims service – Claims teams should have dedicated PII specialist handlers, preferably with legal qualifications.
Share this story
Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note, we have relied on information sourced from third parties, and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law.
Categories: Professional Indemnity,
