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Editor’s comment of the week: Why PI is on a claims made basis

Online comment relating to article: Honister Capital sunk by £6m uninsured claim

‘Claims made’ PI is not fair but other option is unworkable

IFAs are one of many professions that need PI cover which is arranged on a “claims made” basis. The insurer sets the premium according to how probable it is a claim will be made on business already transacted.

The insured (IFA) has to declare any cases known to be pending. The insurer knows what has already been written and can asses riskiness and potential liability.

The alternative is a “claims arising’ basis which would cover when any faulty advice was actually given. Here the insurer has no control or idea as to what sort of future advice and product recommends will be and so cannot asses the risk. I do not think a claims arising basis is offered in the UK to IFAs but the premiums would be a lot higher.

I agree it is totally unfair but a predictable result of the attitude which treats PI cover as some sort of compensation slush fund and a regulatory system that encourages claims, I am amazed any PI writer would want to cover IFA firms. If a class of business has high claims experience, the insurer will price up and out or walk away entirely, no different to young drivers.

Andy Newman

Further comments relating to the article:

It is always easy to be wise with hindsight but it is somewhat surprising that BA compliance allowed a £6m Ucis deal to go through. There has to be a lesson there for all larger firms in particular. It makes one wonder what timebombs others may be sitting on.

Simon Webster

Why don’t they name and shame the firm responsible? What annoys me most is that the boys at the top must have known about this pending claim for a fair while and before it all went pete tong, they managed to make their escape.

Simon Davies


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