In the late 1980's there was a quiz show on ITV called "Busman's Holiday". For those of you not old enough to remember this was a popular quiz show where three teams of three from differing professions competed in various ' work' related question rounds to try and win a trip abroad. The trip would be a "busman's holiday" and would involve the lucky winners spending time doing their normal job in a foreign country.
It's fair to say that at the time the show was popular, foreign travel outside of two weeks to Majorca was still a bit of a luxury enjoyed by a relatively small minority of the UK population, even so I am not sure that there were ever any teams from the Insurance Industry that took part (no doubt someone will correct me if I am wrong!).
For most professions the idea of the busman's holiday where they have to applying their own trade to their own set of circumstances is a bit of an anathema. This attitude persists across all professions and is why builders have half finished extension, painters have houses in need of decoration and, I would venture to suggest, why General insurance Brokers tend not to give due consideration to their own insurance needs.
Let us consider for a moment Professional Indemnity Insurance. Prior to regulation by the FSA when PII cover became compulsory for General insurance Brokers, very few firms purchased the cover. It could be argued that this is because at that time the industry, and the UK generally, was a far less litigious place than it is now. However if you take a snapshot of the Industry today it is quite plain that most general insurance broking firms are inadequately insured for PII, largely because they have failed to evaluate their own risk.
The vast majority of brokers purchasing Professional Indemnity Insurance ask not "what is my exposure to claims", but "what is the FSA minimum requirement for this cover". If expressed by a client, this is a sentiment that we would all go to great pains to explain as folly. So why do professional insurance advisors fail to take their own advice?
There is probably a combination of factors at play here. Undoubtedly the "Busman's Holiday" principle applies but also, and particularly in respect of PII covers (and probably D&O risks too), there is uncertainty about a product that is on claims made rather than claims occurring basis and is not a class of business that comes up as part of the package of advice provided to mainstream clients on a day to day basis.
As at June 2011 the current FSA minimum requirement for UK General Insurance brokers buying PII Cover are €1,120,200 for a single claim and €1,680,300 in the aggregate (or 10% of annual income up to £30 million). Whilst €1,120,200 might be suitable as a limit for a very small general insurance broker selling home, motor and cover to small businesses, it is totally inappropriate as a limit for a firm that sells high net worth household or cover to medium sized businesses. Consider the possibility of not correctly placing a high net worth household policy where the rebuild exceeds £1.5M. Or a property portfolio which has commercial property values in excess of the same figure. Or a commercial risk where the Business Interruption cover for loss of profits exceeds £1.5M per year. The potential to blow through the FSA minimum cover limits is obvious.
I am not suggesting for one minute that the FSA should revise the minimum levels, general insurance brokers are already over regulated for the risk that they pose, however as a profession we should, rather than looking to the minimums, consider the risks and take appropriate action.
PI Expert is happy to advise Insurance Brokers and other professionals on all aspects of PII cover. Please call 01825 745 410 for help. www.piexpert.co.uk
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