Professional indemnity insurance (PII) is liability insurance that covers firms when a third party claims to have suffered a loss, usually due to professional negligence.
We require certain firms to hold this kind of cover because:
- it provides an extra financial resource that you can pay justified claims from
- it helps prevent insolvency and excessive claims on the Financial Services Compensation Scheme, which is funded by firms that are still trading
It is your responsibility to take out adequate cover, as set out in our rules, and to think about the effect that your PII policy's terms and conditions might have on your business.
Firms carrying on the following activities should refer to the PII requirements in chapter 3 of the Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries (MIPRU 3):
- insurance distribution activity
- home finance mediation activity
- Mortgage Credit Directive article 3(1)(b) credit intermediation activity
Personal investment firms that are category B firms or exempt Capital Adequacy Directive (CAD) firms should refer to the PII requirements in chapter 13 of the Interim Prudential sourcebook for Investment Businesses (IPRU-INV 13).
If a policy is denominated in any currency other than euros, a firm must take reasonable steps to ensure that the limits of indemnity are, when the policy is effected (ie agreed) and at renewal, at least equivalent to those denominated in euros.
You should have:
- continuous cover since the start of your firm’s authorisation
- a policy excess (retention) that is no higher than the minimum level specified
- cover in respect of Financial Ombudsman Service awards made against the firm
The policy details must be reported correctly on the Retail Mediation Activities Return (RMAR), which is the relevant FCA regulatory report.
Check if your broker:
- is a specialist or knowledgeable about your sector
And find out:
- what service the broker is offering, eg, will they provide an advised or non-advised service?
- which insurers can be accessed
How insurers calculate your premium
Insurers assess risks differently but often look at four areas of your firm’s business when they calculate the premium:
- total income
- required limit of indemnity and level of excess
- its risk profile
- its nature
We provide a summary of the current position in IPRU-INV 13 on policy exclusions below:
- You should ensure your PII policy covers all business or activity you have carried on in the past (IPRU-INV 13.1.19(2)R), or will be carrying on during the time the policy is in force (IPRU-INV 13.1.21(1)R).
- A policy must not be subject to conditions or exclusions which unreasonably limit its cover, whether by exclusion of cover, by policy excesses or otherwise (IPRU-INV 13.1.20R).
- If your policy has an exclusion that meets the requirements in IPRU-INV 13, you must hold additional capital resources to cover the liabilities that could arise from the uninsured business lines or activities in accordance with IPRU-INV 13.1.23R.
- However, your firm’s circumstances may mean you need to hold additional capital resources in excess of the minimum amount set out in the table in IPRU-INV 13.1.23R. You therefore need to take the nature of the uninsured business or activity into account (IPRU-INV 13.1.24G and IPRU-INV 13.1.29G).
If you have a concern about your PII policy, you should consider how to address this. For example, you should speak to your PII provider if you are uncertain what your policy covers. Firms should also consider whether any matter has arisen requiring notification under chapter 15 of the Supervision manual (SUP 15).