For most professions the idea of applying their own trade to their own set of circumstances is a bit of an anathema. This attitude persists across all occupations and is why builders have half finished extensions, why painters have houses in need of decoration and why some doctors are still smoking. PI Expert is giving its opinion on why this may also be the reason why general insurance brokers tend not to give due consideration to their own insurance needs.
This is particularly relevant in regards to professional indemnity insurance (PII). Prior to the regulation by the FSA in January 2005 when PII cover became compulsory for general insurance brokers, very few firms purchased the cover. It could be argued that this is because at that time the industry, and the UK generally, was a far less litigious place than it is now. However, if you take a snapshot of the industry today, it is quite plain that most general insurance broking firms are inadequately insured for PII, largely because they have failed to evaluate their own risk.
Jenny Carter-Vaughan, Managing Director of PI Expert, comments:
“The vast majority of brokers purchasing Professional Indemnity Insurance ask not "what is my exposure to claims", but "what is the FSA minimum requirement for this cover". If expressed by a client, this is a sentiment that we in the insurance business would all go to great pains to explain as folly.”
So why do professional insurance advisors fail to take their own advice?
There is probably a combination of factors at play here. Particularly in respect of PII covers (and probably D&O risks too), there is uncertainty about a product that is on claims made basis rather than claims occurring basis and is not a class of business that comes up as part of the package of advice provided to mainstream clients on a day to day basis.
Jenny continues:
“As at June 2011 the current FSA minimum requirement for UK General Insurance brokers buying PII Cover is €1,120,200 for a single claim and €1,680,300 in the aggregate (or 10% of annual income up to £30 million). Whilst €1,120,200 might be suitable as a limit for a very small general insurance broker selling home, motor and cover to small businesses, it is totally inappropriate as a limit for a firm that sells high net worth household or cover to medium sized businesses.”
“Consider the possibility of not correctly placing a high net worth household policy where the rebuild exceeds £1.5M. Or a property portfolio which has commercial property values in excess of the same figure. Or a commercial risk where the Business Interruption cover for loss of profits exceeds £1.5M per year. The potential to blow through the FSA minimum cover limits is obvious.”
PI Expert is not calling for the FSA to revise the minimum levels, general insurance brokers are already over regulated for the risk that they pose, but is calling to general insurance brokers to consider carefully the full cover they might require. PI Expert wants to warn these businesses before they see themselves faced with a claim that their policy simply does not cover.
PI Expert is happy to advise Insurance Brokers and other professionals on all aspects of PII cover. Please call 01825 745 410 for help or visit www.piexpert.co.uk |
