No Increase in PII costs says FSA

Following today's announcement by the Financial Services Authority (FSA), that the award limit for Financial Ombudsman Service (FOS) complaints is to be increased from £100,000 to £150,000, the FSA have said that this should not impact on firms Professional Indemnity Insurance costs. The FSA says that as there are only a small number of cases currently where the award exceeds the current limit the impact on authorised firms covered by the FOS scheme should be minimal.

However PI Expert is not convinced by this argument. Given that the number of insurers who are prepared to provide cover for IFA's, Insurance Brokers and Mortgage Advisors has shrunk significantly and this is already having a significant impact on premiums, PI Expert's view is that the increase in the maximum award cannot fail to result in premium hikes. Notwithstanding that a higher maximum means that some claims must by definition, receive higher awards, it seems likely that as the bar raises at the top end of the payment spectrum, that the lower awards will also increase in value. Spiraling awards across the board will result in more insurers withdrawing from the IFA/Broker/Advisor Professional Indemnity Market and that can only result in further (significant) increases in premiums, even in the unlikely event that the maximum limit increases do not.

The FSA also announced plans today to undertake a significant review of the financial services industry complaints handling process which it described as being "inherently prone to misuse". The proposal is to scrap the two stage system that currently exists under which customers must first complain to the firm and then wait eight weeks before being able to bring the case to the FOS.

The FSA's director of conduct policy, Sheila Nicoll, said: "Good complaints handling contributes to customer loyalty and should provide the opportunity for firms to put right problems in product design or sales before issues become widespread. But we have found major failures with the way firms handle customer complaints and have since taken enforcement action against two firms as a result of poor complaints practices." The administrative costs of the FSA's proposals to firms are estimated at £24m-£82m a year.

Quite what the FSA intends is not clear, however brokers, advisors and intermediaries who are unfairly carrying the financial can for the cost of investigating complaints in respect of the banks miss selling of PPI policies can only hope that this review does not end up in further unreasonable hikes in the levy.

For further information about Professional Indemnity Insurance or for a PI quotation for mortgages advisors, claims handlers, underwriting agencies, tied agents, loss adjusters & assessors, insurance professionals (general brokers, underwriting agents, loss adjusters and assessors etc) call PI Expert on 01825 745 410 or on line at www.piexpert.co.uk

 

 

Home and Away – what are your limits?

One of the important things that a business should consider when buying professional indemnity insurance is the territorial and jurisdiction limits that apply to the policy. This may seem to be an obvious statement, however many policy holders are confused by what underwriters mean by these terms. The default potion that many policyholders adopt is often to ignore what the policy says is covered and then panic if a claim comes in!

Simply defined the Jurisdiction limits of a policy relate to the countries in which the policy will pay to defend a claim brought against the insured. On the other hand the policy territorial limits (sometimes referred to as geographical limits) relate to the countries in which the policyholder is insured to carry out their work. It is not uncommon for the territorial limits and the jurisdiction limits of a professional indemnity policy to be different.

For example a structural engineer may be insured by his professional indemnity insurance policy to work in the UK and Europe as territorial/geographical policy limits. The jurisdiction (or legislative limits) may be restricted to the UK only. This would mean that whilst the policy would cover him to work in France for example, it would only pay to defend a claim that was bought in the UK courts.

For many businesses such as Architects and Accountants whose clients are totally UK based with no overseas subsidiaries, a professional indemnity cover which provides UK jurisdiction and territorial limits will be perfectly sufficient for their needs, however some professions will need wider cover. Buyers of PI insurance should remember that you do not need to actually work abroad to be exposed to claims – a web designed with a modest turnover based in Bognor Regis will need cover for worldwide jurisdiction including US/Canada as his work will be visible throughout the world.

In general terms most PI insurers will grant European cover without making a particularly high charge as compared to their UK premiums. Equally worldwide cover excluding USA and Canada does not necessarily attract a particularly high premium. The real issues arise when cover is required for USA and Canada. At this point and depending on the profession and the work that is being carried out, premiums can mount steeply. The normal compromise where professional indemnity cover is required to include these territories is to provide cover for Worldwide Geographical limits and Worldwide excluding USA and Canada Jurisdiction. How sensible this compromise is depends on the individual clients circumstances, the work that they are doing, their asset base and how their business is structured.

As ever, it pays to take good independent advice. PI Expert is pleased to offer advice to customers who need help in understanding how the geographical and jurisdiction limits of a Professional Indemnity policy can impact on their business and to put together a cost effective insurance programme that meets the needs of the business.

Review and Reward

In difficult economic times we are all looking at ways of saving money. Insurance costs, which are often neglected during times of plenty, can be a good place to start, but you need to be careful about how you tackle this – you don't want to throw the baby out with the bathwater and find you have no cover in the event of a claim! It is however prudent for a business to review their insurance portfolio on a regular basis, providing that the review process is carefully considered.

1. The first place to start is to reread your insurance proposal forms. These will tell you what you have told insurers – and on which facts your policy cover is based. It is not uncommon for factors such as numbers of employees or turnover to fluctuate substantially during the course of a business's life. If you have a policy where the turnover or workforce that you have declared is higher than your current situation then you may be paying too much for your cover. If it is much lower you might find that you have no cover in the event of a claim.
   
2. Check that you are still doing what you told insurers you are doing. It is surprising how many businesses who undertake this process realise that what they originally insured for is no longer the process that they require cover for. You might also find that the percentage of your time is being used differently to when you took the cover out – perhaps a particular product or service has proved more popular as your business has grown or is more relevant to the current market place than previously. If your business has changed then you should talk to your insurers – this could mean a price increase or a price decrease, but it is better to be covered than not!
   
3. Consider what areas of the world you are now working in. Does this still fit what you have told your insurers – if you are now concentrating your business in the UK only then premiums may decrease, but if the internet has made you into a net exporter of products then you might need to change the geographical limits on your policy to fit.
   
4. Has your premium gone up every year for no good reason? It is surprising how many people simply renew with the same insurer each year even though the price has gone up a bit. Remember those one or two percents can add up over time, particularly as over the last 5 years insurance costs have been falling rather than rising.
   
5. Talk to an expert, not a call centre. PI Expert is on hand to help customers understand their insurance requirements. Our customers get straight through to a human being who talks their language and is ready to help customers understand their insurance cover and in order to the right cover at the best available price.