Professional indemnity insurance (PII) has certainly had its share of headlines this year.
There has been lots of talk about pooling insurance and the potential for firms who place less ‘risk’ into the system to benefit from lower costs.
There has also been plenty of coverage on the impact of the Financial Ombudsman Service award limit increase from £150,000 to £350,000 in April.
One thing remains clear - obtaining PI cover is becoming harder than ever.
With that in mind, here are some tips to consider which will hopefully be useful reference points when applying for or renewing your firm’s PI cover.
Firstly, it's important to be organised.
Your broker is likely to contact you around four months before the renewal date, and it's usually advisable to submit your proposal form no later than one month before your cover expires.
But it can only be a positive to allow your broker as much time as possible to seek out terms.
Try not to leave things until the last minute. By fully completing your proposal form and submitting this as soon as possible, this gives your broker the maximum time available to secure terms.
Think long-term and build a good relationship
Many firms don't see their relationship with their PI broker as an important one.
PI brokers can often be seen as a necessary contact, rather than a partner to the business and a relationship to be nurtured.
Yet the closer the relationship a firm has with their broker, the more each can understand what is required of the other.
It's worth making the development of a close and strong working relationship with your PI broker a priority. It's far better to get close rather than keep the broker at arm’s length.
Keep it tidy
This might seem a bit simplistic, but you might be surprised to hear that PI insurers sometimes receive renewal applications with required information or requested documentation missing.
In one instance that I'm aware of, the application was covered in tea stains! These types of omissions and general carelessness doesn't exactly fill an insurer with confidence.
Such an application will cast doubt in the assessor's mind as to the overall robustness of the firm’s governance arrangements, as wells as the importance it places on matters of regulation.
First impressions count.
I remember from my days in retail banking the times when the bank’s auditors came to visit. If the security entry procedure to the branch was done correctly in the morning, then the auditors (who had a fearsome reputation) would be in a much more amiable mood.
They would draw comfort from how seriously branch management had taken security, and that this approach was likely to permeate into all other areas of branch activity. Presentation and attention to detail are key.
There have been times when advisers have been accused of chasing the latest ‘fad’ without considering the full risks involved in the product and/or how this sits with a client’s attitude to risk.
Often, advice in these areas falls outside an adviser’s core expertise. We have seen forays into more esoteric areas come back to bite firms, especially in the form of exclusions or increased excess limits when it comes to renewing PI Insurance.
Focus on what you do best and resist the temptation to provide advice in areas outside of your comfort zone.
Keep strong management information
One of the key elements of the upcoming senior managers and certification regime (SM&CR) is the need to ensure a firm can demonstrate good governance.
An excellent way to do this is to maintain a strong suite of management information (MI), which also allows management to make good decisions.
A PI insurer will look for this ethos within a firm.
It's not uncommon for an insurer to request to see a firm’s new business register, advice register, persistency figures and training and competency plan. They're also keen to review compliance plans, results of file reviews, third party audit reports - the list goes on.
All these requests are based on assessing how accurate, timely, relevant and consistent a firm’s MI is.
Keep strong MI and use it within your business. Make it an integral part of your firm’s board meetings, and use it to identify trends and spot potential risks to your business.
The records of all this can then be used to demonstrate the positive actions you have taken to your PI broker.
Maintain a robust DB transfer process
For those firms active in giving defined benefit (DB) transfer advice, it's clear this area remains a prime focus for regulators and PI insurers, not to mention MPs and the government.
DB transfers is the one area that will pose the biggest hurdle when it comes to renewing a firm’s PII. This means it's vital a firm can demonstrate it has a robust process in place for dealing with this type of advice.
So what could this look like? Well, a process that operates on a fee basis and isn’t reliant on contingent charging will always curry favour with insurers.
The earlier point about keeping strong MI is also crucial when it comes to DB transfers.
Maintaining an advice register is a positive step. This can demonstrate the proportion of DB cases considered for transfer against a firm’s new business register, which will show the number of cases that actually transferred.
This in turn provides a truer picture for an insurer, and helps them make a proper assessment of a firm’s ethos and culture towards DB advice.
As an example, a firm was visited by the FCA after giving the regulator DB transfer data in the form of a new business register. The data showed a high number of DB transfers being transacted.
But once the FCA was on-site, the firm subsequently produced an advice register which showed a far larger number of advice cases where the recommendation was not to transfer, putting a completely different spin on the FCA’s visit.
Of course, there is a chance the visit could have been avoided completely if the firm had supplied both registers to the regulator at the outset.
Insurers are very concerned about levels of DB activity. It's therefore vital a firm can demonstrate it is completely in control of this area of advice, and can evidence this through robust systems and controls, file checks and strong MI.
Strong compliance support
Many insurers will look positively at applications and renewals from firms who can demonstrate strong compliance support.
A robust internal compliance structure and/or use of a compliance support firm will often mean that insurers pay more regard to applications made by these types of firms.
Insurers can be comforted when a firm seeks professional guidance, with an independent third party looking at the regulatory risks within a firm.
While not necessarily guaranteeing cover, an insurer is likely to feel much more comfortable when renewing PI insurance for a firm with a positive compliance culture.
Overall, the number of advice claims is driving up premiums, even for firms with no claims activity. It's a minefield out there.
I hope at least some of the above helps you submit a well thought out PI proposal, and one which boosts the chances of it being looked on favourably by insurers.