Covid-19 has certainly not made it any easier for UK brokers to secure appropriate professional indemnity insurance (PII) cover. Many now face increased premiums, excesses and exclusions – particularly around risks associated with the current pandemic.
Markets are shrinking, with some insurers imposing blanket exclusions on Covid-related risks. This makes it more important than ever for brokers of all sizes to protect themselves – both against potential negligence claims and against the risk that their PII cover will not meet regulatory expectations.
It’s important to note that brokers are expected to hold PII that includes:
- Cover for claims for which they, their staff and their Appointed Representatives are responsible
- A minimum cover limit of €1,250,000 per claim and €1,850,000 in aggregate (or 10% of annual income, up to a maximum of £30m), whichever is the higher
- Appropriate cover for legal defence costs
- Continuous cover for claims arising from work carried out from the date on which the broker obtained its regulatory license
- Cover for awards made by the Financial Ombudsman Service (FOS).
A PII policy that excludes Covid-related claims would almost certainly not satisfy the first of the regulatory expectations listed above.
Taking out cover with Covid-19 exclusions appears to fly in the face of the regulator’s overarching expectation that brokers must hold PII up to the required limits – without exception.
It follows that brokers should make every possible effort before, during and after their next and all subsequent renewal cycles to secure PII that fully meets the regulator’s expectations.
If you genuinely have no option other than to settle for PII cover with exclusions, you will need to notify the FCA immediately of this fact, in line with Principle 11. This requires that ‘A firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice.’
If a negligence claim were to arise and be rejected by the broker’s PI insurer on the basis of a Covid-related exclusion, this could not only prove costly for your firm – but also highlight its failure to satisfy the relevant regulatory expectations.
If the FCA becomes aware that brokers are accepting PI cover with Covid-19 exclusions, we can reasonably expect it to look at imposing additional capital requirements to mitigate the risk exposure this creates.
Following the logic of the FCA’s framework for identifying and assessing the risk of harm, it’s obvious that if brokers are exposed to negligence claims that may not be covered by their PII policy this could have a knock-on effect on their clients and potentially lead to a disorderly wind-down.
The FCA clearly needs to stay on top of issues that could have a significant adverse impact on brokers’ reputation and/or their ability to continue to provide adequate services and avoid causing serious detriment to clients.
If a broker holds PII cover with a Covid-19 exclusion, the FCA will want to be able to understand exactly how and why this came about. If your firm ends up in this position, you will need to be able to document a clear rationale for this, to demonstrate that you effectively had no other choice, and to refute any suggestion that other considerations (e.g. price) might have played a part.
Brokers clearly face a challenging PII market, but it’s essential you do all you can to protect your firm. There is still PII cover out there without a coronavirus exclusion.
Among the specialists with access to PII cover that can meet brokers’ full specific requirements are firms like Griffiths & Armour, Lockton and Manchester Underwriting Management.
It’s hard to overstate just how important it is – now more than ever – for brokers to make a properly considered decision when purchasing PII cover. Crucial to this is starting the process of renewal as early as possible. This gives you the best chance of obtaining affordable cover that properly protects your firm, your customers and your regulatory position.
If you would like to know more about this, or any other compliance-related issue, please contact a member of our expert team on 01925 765777, or email us at firstname.lastname@example.org