The essential essential : PI cover
Professional Indemnity (PI) insurance recently became compulsory for a host of professions that did not require it before – including insurance brokers themselves.
New Financial Advisory and Intermediary Services (FAIS) regulations make it mandatory for brokers to have PI cover in place and due to the litigious society that we live in, this cover is highly advisable.
Things to bear in mind
This means two things for brokers. Firstly it is important to get your own cover in place in order to be compliant and protect your own business. Secondly, it represents a great opportunity to sell PI insurance to your existing client base. However, before you start placing all this PI cover, it is recommended to look out for the following:
• Check if the deductibles are cost inclusive or cost exclusive - Know who is liable to pay if an insurer incurs costs when handling a claim. A cost inclusive deductible means the insured pays all costs incurred by the insurer (up to the deductible amount stipulated in the policy), regardless of the outcome. If the deductible is cost exclusive, the client only pays towards damages.
• Beware of mitigation of loss clauses - Some insurers will state in their policy wording that they will incur costs to defend, settle or mitigate a claim in the main policy wording and later in the policy they will stipulate a “Mitigation of Loss” clause. This will list an amount that the insurer will limit themselves to when mitigating a claim.
• Take note of the exclusions –
Sanctions – If your client conducts business with any sanctioned person or in any sanctioned territory, they will need special permission from the insurer to get this work covered under their PI policy. Otherwise it will be automatically excluded.
Cover for directors – A PI policy does not cover directors for their duties as a director of the firm. The PI policy will only cover them for professional activities as defined in the policy. A separate Directors and Officers policy will be required to cover them for this additional risk.
Contractual liability – Be careful how you advise your clients around contractual liability. This is an industry wide exclusion and clients should consult with you around their PI cover before entering into agreements with other parties.
USA and Canada – Typically, PI cover excludes business done in North America. Be aware of how much of your client’s business falls in these areas as some insurers offer limited cover here.
Common shortfalls
There are common things brokers miss when giving advice or administering their own PI insurance.
Often, when a policy is moved from one insurer to another, the retroactive date is incorrectly reflected on the new policy, resulting in clients losing retroactive cover. Brokers should take careful note of the retroactive date on the policy schedule because if a claim arises from work completed prior to the retroactive date listed, the client will have no cover and the insurer can repudiate the claim.
Brokers must have robust and reliable systems in place to process instructions from clients. Not placing cover, for example, as requested by your client will make you liable for damages if a claim is subsequently rejected.
Completing proposal forms
Be careful when asking clients to sign at the end of the proposal form and then completing the proposal form yourself. Not only is this unethical, but there is a risk here for the client as claims can be rejected by insurers due to non-disclosure of information that the client would have disclosed to the insurers if they had completed the proposal form themselves.
As a broker, the greater your knowledge of PI products, the better equipped you will be to protect your clients and ultimately protect your own PI. In an ever-increasingly litigious and regulated environment, the more you know about these types of insurance products, the better.
