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Warning that 18-month PI risks EU breach

IFAs taking out 18-month PI policies risk breaching EU rules on minimum insurance req-uirements, warns Collegiate managing director Tony Howe.

Howe says an increasing number of brokers are offering 18-month policies to stop their competitors picking up clients on their renewal date.

But he says these policies are rendered useless by the ann-ual 1.1m limit of indemnity required by EU directives.

He says if at the end of one year there has been an erosion of cover below the LOI, the IFA would have to top up the cover. While cover can be eroded during the 12 months from the start of the policy, the full 1.1m cover is required on the ann-iversary of the policy taking effect. This means that an IFA can blow the 1.1m requirement on day one of the policy without breaching EU rules but will need to buy more cover to meet the LOI as the policy enters the last six months of an 18-month term.

Howe says IFAs will find it difficult to find an underwriter to reinstate the cover at a reasonable price and may be left unprotected. He says: “These policies can be effectively useless once the one year is up. The message for IFAs is beware idiots bearing gifts.”

The FSA says it works on the basis of 12-month policies but declined to comment further.

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