Industry Insight
Sky’s the limit? The urgent need for PII review Robert Sinclair Chief Executive Officer Association of Mortgage Intermediaries
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vailability of Professional Indemnity Insurance (PII) has reduced across all professions, including construction, engineering, law and financial services.
This is because in 2018 Lloyds initiated a review of profitability, as part of its regular re-certification of syndicates, which became known as the ‘Decile 10’ review. It required all syndicates to submit plans for the worst-performing 10% of their business. Failure to produce acceptable plans would result in the syndicate or business line being placed into run-off. With 62% of Lloyd's syndicates that wrote non-US PII making a loss over the previous six years, this line of business become one of the main targets of the review.
Client impact According to the FCA’s RMAR (Retail Mediation Activities Return) figures, PII insurance for advice firms increased by 37% between 2017 and 2019 – from £17,540 per firm to £24,072 per firm. It should be noted that the latest figures, while published in 2020, only relate to 2019, so may only reflect the very early impact of the Lloyd's 'Decile 10’ review. 42 | NACFB
Even this is only part of the story. Many PII contracts have also become ‘hollowed out’ in recent years, with greater excesses and other conditions reducing the amount of cover for greater premiums. For example, some PII contracts put a cap on the number of complex cases that are more likely to result in consumer detriment, such as DB pension transfer cases. This in turn, reduces the advisor’s ability to offer genuine choice to all their clients, in a way that is not always clear and intuitive to the consumer. Whilst firms can secure cover (in line with comments made by the FCA in its April 2020 statement on the availability of PII) we found that firms have experienced significant premium and excess increases and the options available at renewal are limited, due to shrinking insurer capacity in the market.
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The concern is that increasing PII costs, combined with overall regulatory costs, could result in firms exiting the market
