What insurers are looking for
The first thing insurers will look at is the total income a firm is bringing in. Insurers will look at a firm’s performance over the last few years and the estimated income over the current or next financial year. They may question any sharp drops or hikes in turnover. Normally the larger the income the larger the premium will be, though size discounts are available.
Insurers will also consider a firm’s business mix, and whether certain activities are deemed to be high risk. They will also examine complaints and claims history, client documentation, compliance and the experience and qualifications of adviser firms’ staff.
Buying process top tips
Start the process early. Give your PI broker enough time to negotiate with the insurer if necessary, and chase your broker if they have not got in touch eight weeks before your policy is due to renew. Ensure your proposal form accurately reflects your business. Failure to disclose previous regulated activities may result in insurers avoiding claims or even voiding the policy completely.
Be prepared to give your insurer comprehensive information about any riskier aspects of the business such as recommendations to invest in Ucis or tax mitigation products.
Provide your broker with details of your risk management measures and any claims.
Features to look for
Advisers should check whether defence costs are subject to any excess, in which case insurers can appoint solicitors to defend you but advisers will be responsible for paying the excess.
Some policies will have insolvency or failed fund exclusions such as Keydata and Arch cru. These exclusions can be buried within policy wording rather than explicitly highlighted.
Advisers should also look to see whether the policy allows “inadvertent non-disclosure protection”, where insurers will not void the policy in the event of significant non-disclosure or misrepresentation of the facts. Advisers will have to prove any untrue statements were innocent and not meant to deceive.
Notification of claims
Advisers should notify their PI insurer as soon as they are aware of issue which “might/could/may/is likely” to give rise to a claim. Advisers should report any allegation or claim made against them, whether verbally or in writing. They should also report any suggestion or indication a claim is being considered, however remote they believe it to be.
Run-off cover is not mandatory, but is recommended given that PI insurers work on a “claims made” basis rather than when the act or omission occurred. Premiums are normally set at the level of the last annual premium for the first year’s run off, with reductions every year.
The Personal Finance Society and PII broker Howden Windsor have jointly published a buyer’s guide to PI cover aimed at helping financial advisers secure the most appropriate cover for their business.