View more on these topics

Terence Dickens: The dos and don’ts of PI policy disclosure

Taking heed of this advice could prevent a relatively contained issue becoming business-threatening

There has been a lot of press coverage lately around the issue of professional indemnity insurance. Excesses are either so high to establish an effective bar to Financial Services Compensation Scheme recovery (for example, where the per claim excess is set at £50,000 – the FSCS limit of compensation, per person, per firm in respect of investment advice) or insurers have excluded cover for:

  • Certain types of advice (for example, certain non-standard investments or defined benefit transfer advice); or
  • Lack of notification(s) under the relevant policy.

While advice firms may have little option but to accept relevant exclusions and excess levels per claim and in the aggregate, it is still important to shop around to obtain the best terms available.

Are advisers getting a rough deal on PI cover?

The notification issue is something that can be controlled – both prior to inception/renewal of the relevant policy and during its life via prompt notification of claims, including complaints and circumstances in accordance with policy terms.

If in doubt, businesses should talk to their brokers and err on the side of caution when it comes to notifying claims/potential claims in order to avoid preventable policy issues.

It is logical that the premiums charged will be affected by what insurers are told. That is because full information is material to their assessment of risk and the alternative may be that a business is left without cover for certain claims and complaints or, even worse, without any insurance at all because insurers seek to avoid the policy from the start. Either way, it could become the FSCS’s problem, which consequently impacts levies.

Fair presentation
The Insurance Act 2015 represented a significant reform of insurance contract law in the UK.

The pre-contract duty of disclosure on the policyholder is one of a duty of “fair presentation”. This aims to encourage co-operation between insured and insurer prior to inception.

The insured is required to:

  • Disclose every material circumstance it knows or ought to know; and
  • Conduct a reasonable search of its records to discharge the duty of fair presentation.

Editor’s note: The PI market is a mess, but for good reason

In turn, fair presentation of a risk involves:

  • Disclosing information in a clear and accessible manner (so “data dumping” should be avoided); and
  • Taking steps to ensure that “every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith”.

With this in mind, practical steps should be taken by firms at inception or renewal of their PI policy to avoid preventable coverage issues arising. Here are some key dos and don’ts:

Do:

  • Ensure that all questions asked by insurers are answered fully and accurately at the pre-contract stage/during the renewal process;
  • Be conscious of the need to conduct a reasonable search of company records to ensure a fair presentation of risk to insurers;
  • Disclose if there is any doubt as to whether something is material;
  • Ensure prompt notification of claims and circumstances (in accordance with policy terms) during the life of any PI policy.

Don’t:

  • Choose not to disclose something, as it may affect your premium/whether insurers will offer terms. This suggests the information is material and will likely cause a coverage problem if issues in the form of claims and complaints arise;
  • Admit liability/deal with/settle claims and complaints without input from PI insurers;
  • Sit on claims/complaints/circumstances and notify later. Prompt notification, in accordance with policy terms, is essential.

Taking heed of the above may well avoid a relatively contained issue becoming a business-threatening one. It will also mean businesses (and ultimately consumers who may have recourse to the FSCS) have the best chance of cover being confirmed/made available when it is most needed.

Terence Dickens is managing associate (FS litigation) at Foot Anstey

Recommended

Brewin Dolphin continues hiring spree for West End office

Brewin Dolphin has bolstered the office it opened last year in London’s West End with another hire. William Quantrill joins the firm after 13 years with private bank Kleinwort Hambros, taking total office headcount to 28. The office was opened to focus on high-net-worth clients with complex financial needs, offering both financial planning and investment […]

1

Standard Life advice arm buys £230m Northern Ireland firm

Standard Life Aberdeen’s financial planning and advice business, 1825, has today announced it will acquire the wealth management arm of BDO Northern Ireland. BDO Northern Ireland was established over 25 years ago and has assets under advice of around £230m. Its wealth management team specialises in all aspects of wealth planning and support from corporate […]

Tapering of annual allowance – adjusted and threshold income

The definitions of adjusted income and threshold income used to determine whether, and to what extent, someone’s annual allowance will be reduced can be confusing.  Here we try to make sense of it all. The annual allowance will be reduced for high income individuals from 6 April 2016.  Our previous article Tapering of annual allowance […]

2

How to become a financial adviser: diplomas, degrees and workplaces

Information on how to become a financial adviser is sparse. Money Marketing speaks to advisers about what the requirements really are and how best to meet them. Speaking to financial advisers and planners today, each will have a unique and varied story about how they entered the profession. There are more than a handful of pathways […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com