From Adviser Guide: Getting Professional Indemnity Insurance
Q: What can I do to reduce my PII premium?
With PII premiums having risen in recent years, firms understandably are looking for ways to cut costs.
No-one wants to pay over the odds for their insurance, but it would not be befitting of a financial adviser to jump into the first cheap PII offer available.
“Before you think about reducing the cost, firstly make sure you are happy with the product you are purchasing and fully explore the cover being provided,” says Teresa Brewer, Sales and Services Director, Aon UK. “Always try and achieve a civil liability wording and look at the additional covers and exclusions that are available.”
All insurers are not the same and your research should take in the solvency and strength of the provider, their financial rating or any additional backing they have. As with any adviser’s professional research, when you’re choosing between two or three prices, you will not be comparing the exact same product. Unlike a book, you can judge PII by its cover.
As Ms Brewer points out, the IFA PI market is a brokered market; therefore advisers would do well to consider the support and advice they are getting from their broker.
“You should be aware of the service the broker is offering and what insurers they have access to. Some brokers will place policies with a number of insurers whilst others will hold exclusive schemes.”
Bearing in mind that the two variables of any renewal are the limit and excess, there are crucial details to consider in the small print, she adds.
“A lower limit and higher excess will reduce the premium but the consideration you have to pay attention to are the capital requirements that an excess commitment makes on the firm and if the limit is appropriate to cover you.
“Don’t forget that if the limit is on an aggregate basis the lower you set your PII limit the higher the exposure to the firm and its directors.”
The best way for an adviser to reduce their PII premium without having to make any sudden upheavals is through subtle, long-term adjustments to the way you run your business. These could include improving risk management and putting in place more solid checks and balances that insurers will appreciate.
“Claims can sometimes be inevitable so an insurer will want to understand what changes the firm has made since the claim, how was it dealt with and how proactive they were in making sure the situation does not reoccur,” says Ms Brewer.
“Standard documents such as engagement letters, terms of business, fact finds and reports are a significant tool in risk management as they should set out very clearly what the considerations are. Without these documents, or if the documents are poor, insurers will view this as a problem as they will consider if a claim arises, how easy will it be to defend successfully?
“Be realistic in your expectations. An adverse claims history or a diverse/complex company structure will tend to require a higher average rate against the rest of the market. Your broker should manage your expectations through the renewal process to help you understand where you sit in the spectrum.”