FSA factsheet for
Buying professional indemnity insurance In this factsheet:
This factsheet is for you if you are a regulated firm that
requires professional indemnity insurance (PII) cover, including: What is PII?
• Financial advisers
• Mortgage intermediaries; and Why does the FSA
• General insurance brokers require firms to hold
• our rules for holding PII;
How does the PII
• the PII market;
• how to obtain PII;
• how to present your business to the PII market.
Who to deal with
What about the
What is professional indemnity insurance?
Applying for a PII
policy – what do
Professional indemnity insurance is liability insurance that covers businesses in the event that a insurers look at?
third party claims to have suffered a loss, generally as a result of professional negligence.
back Making a good
Other factors to
Why does the FSA require firms to hold PII cover? remember about PII
• It helps firms maintain adequate financial resources;
• It provides an additional financial resource from which firms can pay justified claims; and
• It can help to prevent insolvency and excessive claims on the Financial Services Compensation
Scheme, which is funded by firms which are still trading.
SFDFS004 11/10 | Insurance brokers | Page 1 of 4 indemnity insurance
FSA factsheet for Insurance brokers
How does the PII market work?
A number of different organisations, with different functions, operate within the PII market.
The table below shows what some of them do.
What do they do? What do they represent? Do they carry any PI risk?
Insurance broker Advise and
Your firm No (agent for your firm)
(or other intermediary) arrange insurance
Provide PII underwriting
Underwriting agency Insurers No (agent for insurers)
expertise to insures
Insurer (including Lloyd’s
Transfer risk Shareholders/capital providers Yes
Who to deal with?
Insurers rarely deal directly with the firms to whom they are comparatively small. So it is important to check which insurers
providing cover. Often, they can only be accessed through a broker usually places business with, as some do not deal
specialist insurance brokers. with all insurers (and vice versa). If you are having difficulty
getting cover, you need to make sure you are getting access to
While there may be many insurance brokers willing to help, a wide range of insurers, and that might be through a number
the number of actual insurers offering cover to firms is of brokers.
What about the Lloyd’s market?
How is insurance placed in the Lloyd’s market? • Find out what service the broker is offering, for example
You can seek quotes from Lloyd’s syndicates but you cannot will they provide advice?
deal directly with Lloyd’s. You should contact an accredited • Find out which insurers can be accessed.
Lloyd’s broker or a broker with a sponsoring arrangement. If your • Check if they are specialists/knowledgeable about
current/preferred broker is not a Lloyd’s broker or does not have your sector.
an arrangement, they can contact these firms on your behalf but back
each part of the chain is likely to charge commission or fees.
Critical issues for getting cover:
• Know who you are dealing with and who they represent.
• Check if your broker deals directly with the PII market, or
through another broker and how much it will cost you.
SFDFS004 11/10 | Insurance brokers | Page 2 of 4 indemnity insurance
FSA factsheet for Insurance Brokers
Applying for a PII policy – what do insurers look at?
Each insurer will assess risks differently and may look at You may want to think about carrying out your own
different criteria. However, insurers often look at four main past-business review, so that you can assess how much
areas when calculating a premium: confidence you have in defending any future claims, and
also quantify your risk exposure (if there is any).
• total income;
• required limit of indemnity and level of excess; Also, the insurer will take the following management and
• risk profile of the business; and business factors into careful consideration when assessing the
• nature of the business. level of risk that a firm poses:
Risk profile • Adviser/support staff ratio
The most significant of these issues is the firm’s ‘risk profile’. • Self-employed staff
Insurers are likely to consider types of advice, products sold • Compliance
and management and business issues. • Control systems/monitoring
Exposure to certain types of products may mean that insurers • Client/adviser ratio
are likely to treat a proposal with greater care. For example, • Tail (volume of past business)
insurers will be concerned about areas of business showing • Qualifications/experience for staff
significant loss in value where a complaint has not yet been • Specialist support
made by the client. • Business structure
• Regulatory visits disciplinary record
But that does not mean advising on certain products will • Claims records/complaints log
result in insurers declining to quote. The decision usually
depends on individual circumstances and may be influenced by Critical issues:
other information with which a firm can provide insurers, such • Seek guidance on which areas are of particular concern
as adequate comfort that claims will not arise in the future for to the insurer.
example confidence in record keeping. • Consider where it is possible to provide comfort to
insurers, for example about product types sold and
SFDFS004 11/10 | Insurance Brokers | Page 3 of 4 indemnity insurance
FSA factsheet for Insurance Brokers
Making a good application and highlighting strengths
• A good quality application to insurers is important. • If you need further help, consider firms who offer services
• Make sure that you provide clear and comprehensive such as risk management and risk assessment which will help
information. you to present your proposal.
• Ensure that you have made full disclosure of all material • Where appropriate, consider supplementing the proposal with
facts as failure to do so could invalidate the policy in the other pertinent information on ‘risk management’ issues,
event of a claim. such as:
Risk management areas Examples
Compliance systems Frequency of file checking
Management control Show the degree of supervision of advisers
Training and competence Evidence of assessments of competence and qualifications
Client acquisition Client satisfaction surveys
Other factors to remember about PII
• It is your responsibility to manage your relationship with • Disputes with insurers do not discharge firms from
your insurer. their regulatory obligations (particularly dealing with
• You remain responsible for ensuring that customer complaints complaints and Treating Customers Fairly). You should
are handled in line with our rules. maintain documentary evidence to substantiate the
• You may want to negotiate a small claims handling clause content of any dispute.
into your PII policy. This allows you to settle or dismiss a • You are reminded that the minimum limits of indemnity
claim, without informing your PI insurer, if it falls under a as set out in our rules are on an annual basis. Firms should
certain level (normally under the policy excess). not obtain cover with the required annual minimum limit
• You should clarify what constitutes a notifiable event with of indemnity spread over a longer period (for example,
your PII broker before agreeing to the policy. 18 months).
• You should consider the additional record keeping obligations back
that may be imposed by your PI insurer. Please look at the
FAQs on our website.
SFDFS004 11/10 | Insurance Brokers | Page 4 of 4 indemnity insurance