Professional Indemnity Insurance (PII) for financial advisers has become increasingly difficult and expensive to secure in recent years. This has been largely due to the frequency of claims, together with some large instances of fraud over the last five years that has led to the yearly renewal exercise becoming somewhat of a challenge for some firms. It is clear that the industry has improved its approach to risk management but due to the fact that many insurers are still dealing with legacy issues (Ucis and pension switching claims especially) the market may still remain unsettled for a couple of years.
Whilst many of the PII challenges the industry faces are largely outside the control of individual firms there are steps, some relatively straightforward, that firms can take to actively assist in the management of PII renewal process. As a specialist PII provider to the IFA sector we see a large variation of the quality of submissions so we have outlined a few points below that should help you manage your PII. A common error is to leave the preparation for your renewal until you get round to completing your proposal form however, by preparing throughout the policy year will enable the exercise to be significantly smoother and could well assist in reducing your premium, excesses and exclusions.During the policy year
- Contacting your broker/insurer during the policy period allows you to discuss any changes to your insurer’s stance over the last 12 months. Have they been focusing on and applying any exclusions or rate increases on any particular activity since your last renewal date? Has their risk appetite changed? Having this conversation early can help to manage expectations for renewal and minimise any last minute surprises if you conduct any activities that have fallen into the ‘higher risk’ category.
- Ensure that you alert your insurer to any changes in your firm throughout the policy period. Whether it is a new, undisclosed activity, a new appointed representative or the acquisition of a new firm, you should fully disclose any changes to the insurer so they can give their feedback and cover this new disclosure.
- Familiarise yourself with your policy. Is the policy suitable for your firm? What areas can be improved? There is no standard wording for financial advisers in the PI market so familiarity with your policy and wording ensures that you can make a more educated decision at renewal. Again, your broker should be able to advise you on your coverage and whether anything can be improved at renewal, either with your current insurer or alternates. Try not to just focus on price as a saving on the premium could end up affecting your firm later on should a complaint arise.
- Insurers are looking for full details on higher risk areas so be prepared to provide comprehensive data. Ideally, have an easily access to a list of each investment showing amounts, provider, performance and percentage of client’s investor’s portfolio. We have seen this especially with defined benefit transfers over the last 12 months. We encounter firms attempting to compile these lists at the very last minute which, depending on the systems in place, can take several hours, if not days to compile. Our advice is to maintain a record of this data in an easy, updateable spreadsheet throughout your policy year.
- Review and maintain your suite of documentation. Items such as suitability reports and clearly documented internal procedures can be submitted to insurers with your renewal forms and provide added reassurance that you have the required structures and systems in place.
- Maintain an up-to-date claims register. If you have had any claims look at what measures you have taken, or can take, to prevent a reoccurrence. You should conduct a review of all similar cases in order to establish whether there are likely to be any similar issues and take measures to adapt your process. Insurers like to see a clear approach to dealing with any potential systemic exposures that a firm may have so if this is done straight away this will strengthen your application.
- Review your risk management and compliance procedures. Assess the firm’s processes and specifically the areas representing higher risk. If you have an external compliance provider continually review their input to the firm and assess whether they are offering you a compatible service. Insurers want to see that all financial advisers have robust procedures to identify, assess and risk.
- Start your renewal process early. One of the most significant contributing factors we see in firms receiving onerous terms is when they submit their proposal form just a week or two before the renewal date. This can potentially cause last minute issues if your insurer requests further information or offers any unsatisfactory terms as it may not leave enough time to further discuss this with them or seek alternatives.
- Ensure your broker is experienced in dealing with IFAs. We see many firms which are presented incorrectly to insurers by an inexperienced broker and approach us late in the day. The correct presentation to insurers is key and there are extensive benefits to having an IFA broker who understands your business and the IFA PI market working with you, not against you.
- Discuss and agree which insurers your broker will be approaching. Some brokers depend solely on in-house facilities and others conduct more extensive marketing exercises. Where you feel you have exposure to any higher risk areas it can be beneficial to seek comparative quotations. Try and avoid more than one broker approaching the same insurer on your behalf as this could affect the terms you receive. It is also important to establish whether your broker has direct access to insurers or whether they are going through another broker. It is rare that extra links in the chain enhances communication and understanding.
- Once you commence your renewal process, ensure that you remain in constant communication with your broker and receive terms well in advance of your renewal date. This will prevent any last minute surprises and ensure that you can fine tune and discuss any alterations to your cover.
- Presentation is key. A rushed, untidy proposal form with poor responses or ignored questions is likely to impact the way your firm is perceived. Ensure that your submission is clearly completed, percentages all add up and any supplementary information is clearly labelled. Read the question properly before answering as some questions refer to work conducted over the last year, whilst others refer to activities conducted over longer periods of time. This has disclosure implications too as anything which is not disclosed may not be covered down the line. Your broker should review the information submitted beforehand and ensure that the presentation is adequate.
In conclusion, planning, preparation and communication throughout the year is time well spent and could save you money, time and certainly any stress at renewal.
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