INSURANCE DOCTOR

An IFA’s guide to Professional Indemnity insurance. Daniel West of Apex Insurance responds to some of the most common questions asked by advisers when it comes to the challenge of renewing PI insurance

WHY AM I BEING ASKED TO COMPLETE YET ANOTHER PROPOSAL FORMFOR PI INSURANCE? IT’S ARDUOUS ENOUGH HAVING TO COMPLETE THE ONE FOR MY EXISTING INSURER?

With the significant hardening of the market, it is now imperative insurers are provided with as full and detailed information as possible when first approaching them.

It’s fair to say that the days of Insurers accepting short proposal forms, especially at renewal, are over. We have been approached by many firms who, due to completing a short proposal form, have been offered restricted cover from insurers. On receipt of a more detailed proposal, the Insurers were presented with a more detailed risk profile and subsequently amended their terms.

IF THE PI MARKET IS SO DIFFICULT RIGHT NOW FOR IFAS, WHY AM I STILL GETTING SO MANY CALLS FROM COMPANIES WANTING TO QUOTE FOR MY BUSINESS?

There are many commercial brokers who claim to be PI specialists, of which some of them are. However, there are very few who truly understand the PI market for IFAs.

With the market as it is, it’s understandable that IFA firms may be attracted to an offer of a potential saving or promise that DBT (Defined Benefit Transfer) cover is readily available.

A PI broker who truly understands the IFA market will have spent years building relationships with insurers and would be open with you from the start as to the current conditions in the market.

Also, it’s worth noting that insurers have been known to decline terms to all parties when a proposal form has been presented to them by multiple brokers.

I HAVE UNDERTAKEN DBT WORK, DOES THIS MEAN THAT I WON’T BE OFFERED RENEWAL TERMS?

This is certainly a possibility. Several insurers have recently changed their appetite on IFA risks and in some cases have left the market altogether. As an IFA specialist PI broker, we like to keep up to date with the ever-changing conditions in the market and as such are very proactive in our client renewal process. We suggest you start reviewing your insurance at least eight weeks prior to the renewal.

MY PREMIUM HAS DOUBLED THIS YEAR AND I’VE NOT DONE ANYTHING DIFFERENT, IN FACT MY TURNOVER HAS REDUCED. WHY IS THIS?

We are currently experiencing the hardest PI market seen for a long time. It’s not just IFAs who are struggling, but most industries in general. With restricted capacity and limited appetite, the cost of PI insurance is constantly rising. When choosing to test the market, I would suggest dealing with one specialist broker. One who has as much access to the insurer market as possible. As mentioned above, duplication may jeopardise your position with an insurer.

MY INSURERS WANT TO APPLY A REDUCED LIMIT OF INDEMNITY FOR DBT WORK, IS THIS ALLOWED?

The FCA Handbook requires IFAs to carry minimum levels of cover. However, we have seen policies which contain specific restrictions for DBT activities (for example; reduced limits of indemnity of £250,000 or £500,000).

The director of ‘life insurance and financial advice’ at the FCA, has recently stated “Appropriate cover should not exclude relevant lines of business, such as defined benefit transfers. It should not include sub-limits, meaning that the cover falls below the minimum requirements and for example where financial advisers are IDD firms the minimum requirement is €1.85m.”

We have worked with firms that have been asked to give up their relevant permissions if they cannot increase the inner limits and have found them appropriate cover.