Moonstone: PI cover compulsory in 2010

The General Code of Conduct stipulates that, in terms of its risk management requirements, financial service providers must “…at all times have and effectively employ the resources, procedures and appropriate technological systems that can reasonably be expected to eliminate, as far as reasonably possible, the risk that clients, product suppliers and other providers or representatives will suffer financial loss through theft, fraud, other dishonest acts, poor administration, negligence, professional misconduct or culpable omissions.”

It has now also been decreed that Professional Indemnity cover of at least R1 million will be compulsory from next year for all registered financial service providers.

Before you throw a tantrum, take a look at what this means; it may just be something that can save your business in case of an unexpected claim arising from an omission, error or negligent act on your part.

The following introduction to professional indemnity on the Glenrand MIB website is in our opinion an excellent summary of what PI cover entails, and we would advise you to read the whole page by clicking on the link provided below.

PI insurance essentially provides the named insured in the policy with indemnity in respect of legal liability arising out of the practice of the profession. This normally arises as the result of negligent acts, errors or omissions. Claims do arise in the course of rendering professional services and thought needs to be given to the risk exposure, risk management and risk transfer.

PI insurance has to do with understanding the risks inherent in working as professional and taking adequate steps to protect against the consequences of these risks. It is vital for the professional to understand the risks and to be proactive in protecting against any exposure, financial or otherwise.

The world in which professionals operate is one of ever increasing pressure, with demands for quick answers and cost effective solutions. This pressure can lead to errors and omissions by the professional which can and does give rise to claims. This factor together with the litigious nature of our society underscores the need for PI insurance, both for clients and professionals.

Circumstances which give rise to professional liability claims are seldom clear cut - they often give rise to disputes as to the nature and extent of the responsibility. In cases where the professional is blameless he or she may nevertheless be drawn into lengthy disputes which can be both financially and emotionally draining. PI insurance provides the professional and the client with peace of mind and financial protection.

The guide on the website will assist you in understanding the terminology used in PI insurance policies. It is not, however, exhaustive and you are advised to obtain advice from a broker.

To test our understanding we sketched the following scenario to Elri Klement of Southern Cross Underwriting managers:

If PI cover provides protection against loss as a result of negligent actions, errors or omissions on my part, does this mean that I will be covered if, for instance, I neglected to add a new car bought by my client and which he requested that I add to his insurance, after which a claim arose?

Elri responded: “Yes, a duly registered financial service provider is supposed to know what the fit and proper requirements are, so if in the scenario above the FAIS Ombud found you guilty of negligence, you would be covered.”

There are a wide variety of options available to suit everyone’s needs, so you would be wise to make use of a knowledgeable broker.

Those who make use of Moonstone’s comprehensive compliance service qualify for preferential rates due to the reduced risk for PI cover providers. Depending on how you address compliance and business risk management, PI cover may cost less than the arm and a leg you anticipate, and save you substantially more than these limbs in the unlikely event of your mistake leading to a loss for the client.

To read more about PI cover, please go to the Glenrand MIB website.

If you would like comparative quotes from the two providers quoted above, please contact Deon du Toit of Moonstone on 021 883 8000 or via e-mail