Getting the best professional indemnity cover

Umesh Puri, associate director of the professional indemnity division of Howden Insurance Brokers, says regular contact with your PI broker means you can prepare and budget for the renewal process.

Mr Puri says: “As concerns regarding the financial adviser sector have risen, insurers are requesting more detailed information in order to correctly identify all areas of risk that a firm may pose.

“Completing your proposal form can be something of a challenge. Many of the short forms which were previously available, have been replaced by longer forms asking for more detailed information over a ten year period and sometimes even longer.

“Given the challenging insurance market conditions, allow sufficient time for your broker(s) to negotiate with insurers. If your broker has not contacted you eight weeks prior to renewal, chase them and request for the process to begin.”

Mr Puri says advisers should think twice before asking multiple brokers to quote for professional indemnity cover.

He says the range of primary layer insurers available to the financial adviser profession is severely restricted and you are unlikely to benefit if the same insurer is approach by multiple brokers.

In terms of getting your cover arranged quickly, Mr Puri says you should ensure the proposal form is neatly completed and accurately represents your business.

He says this is particularly important where a business has acquired another firm that has operated in higher risk areas.

Mr Puri says: “If you fail to declare any activity that you have been involved in previously, insurers may avoid claims, or even worse, avoid your policy from inception.

“Many of the issues we encounter are a result of unintentional inaccuracies in reporting past activities.

“Clearly show your activities in the boxes provided on the form and attach any additional notes or clarifications on headed paper.”

He warned that presentation is key so advisers should try to avoid sending activity splits in different formats or lists of individual investments.

“Remember, renewal trail commission needs to be split up too.”

Mr Puri added if an adviser’s firm has operated in traditionally high risk areas, for example, Ucis or tax mitigation products, advisers should be prepared to release comprehensive data including products sold, original investment amounts, current values and a percentage that this investment represents of the client’s overall portfolio and provide supporting documentation.

“Insurers expect all financial advisers to have robust procedures in place for identifying, assessing and controlling risk so it is vital that the renewal submission clearly and accurately sets out the firm’s approach to risk management and highlights areas where a firm feels they exceed their peer group.

“This might, for example, include reference to membership of organisations such as the Association of Professional Financial Advisers, the Personal Finance Society or networks where the firm is actively encouraged to adhere to a risk management framework over and above that normally used.”

If advisers have had claims or notifications, then Mr Puri says they should provide as much information to your broker as possible including the date of notification, amount claimed, a brief summary of the work undertaken, and the alleged wrong doing accompanied by solicitors’ reports on any claims paid.

He says it is always very important to provide evidence of steps taken to prevent such circumstances occurring again in order to reassure insurers.

It is vital to demonstrate that such issues are not systemic, Mr Puri adds.

He says advisers should ensure they have their quotations well before their renewal date, especially if they are likely to move insurer.

Mr Puri says: “You need to familiarise yourself with all the terms and conditions before your policy incepts and ask your broker to explain any condition where you are uncertain as to the meaning of any changes to the policy, generally, that have been made since the last renewal.

“Ensure the person responsible for purchasing insurance understands the business and appreciates how insurers pay close attention to FCA reviews and ombudsman decisions.

“As a result the questions asked at renewal will be adapted accordingly. A recent example is where numerous insurers are now requesting information on underlying assets within a self-invested personal pensions following an ombudsman decision which found against a Sipp provider.

“While following these steps should help to make the renewal process easier, there is no substitute for a well-designed, fully embraced risk management policy.

“This should extend well beyond the mere monitoring of risk to become an integral part of organisational culture.

“Only when the financial adviser community, and indeed other professions recognise the importance of risk management will the traditional cycle of hard and soft insurance markets start to level out.”