Your Complete Guide To Renewing Your Professional Indemnity Cover20th December 2019
Earlier this year, the Personal Finance Society confirmed it had been contacted by financial advisers ‘across the country’ who have experienced ‘significant’ hikes in their PI premiums.
So why is this happening? And what can you do when it comes to renewing your PI cover?
Why Renewing Your PI Insurance Is Becoming More Difficult
Sad as it is to say, in recent years financial advisers have generated more PI insurance claims than most other professions. The industry has found itself at the centre of several high-profile mis-selling scandals and now faces a new threat in the shape of DB pension transfers.
While premiums have steadily been rising in recent years, anecdotal evidence suggests that firms are now seeing their PI insurance bills rise at a previously unprecedented level. Some adviser firms that offer DB transfers have said they are struggling to obtain or afford the cover they need, with some quoted a 500% increase in premiums.
There are three main reasons why PI insurers have been spooked:
- The British Steel pension scheme scandal
- In April, the Financial Ombudsman Services’ (FOS) limit for complaints about actions by firms on or after that date rose from £150,000 to £350,000
- Supervisory reviews from the FCA. Last year the regulator reviewed 13 firms and judged that fewer than 50% of DB transfer cases were clearly suitable. These concerns were reiterated in an update this summer
The Knock-On Effects In PI Insurance
The factors above, and other issues, have had several knock-on effects on advisers and planners looking to renew their PI insurance:
- Higher premiums – a year ago one trade press reported that PI premiums had risen by 21% in the previous year. Since then, some advisers have seen their premiums increase up to four-fold
- Restrictions – Some PI insurance providers are telling firms that they can only conduct a certain number of pension transfers in any given year
- Higher excesses – another trade press reports that some advisers have seen DB transfer coverage excesses increase tenfold on renewal, from £10,000 to £100,000
- Shorter renewal terms – some insurers are now offering renewals for only 12 months, rather than the previous 18-month period.
While it may seem as if getting the right cover at a fair price is impossible, don’t panic.
5 Tips When It’s Time To Renew Your PI Insurance Cover
- Prove Your Service
You’ll find that it’s easier to secure acceptable PI insurance terms if you can evidence that your clients are receiving the level of service and reviews that you have promised.
Keeping excellent records of your service, including review meetings etc. can show an insurer that you’re doing what you say you will. If you receive a complaint in the future, you can demonstrate that you did exactly what you said you would – and you can prove it.
- Start The Process Early
Don’t leave your PI insurance renewal until the last minute. Think about approaching insurers up to three months before the renewal date of your existing cover.
Starting the process early gives you more time to search the market and to find the right cover for your business.
- Improve Your Submission To PI Insurers
Insurance is all about managing risk. And, your proposal form is a representation of the quality of your business to the insurance market. So, if you can make your submission attractive to an underwriter, you will increase your chances of getting competitive terms.
Ideally, you should supply a written document that outlines your philosophy and sets out the framework within which your business operates.
For example, this could include whether your firm considers requests from existing clients only (which is likely to be a lower-risk position) or accepts wider referrals. This document may also detail your compliance process and who carries this out.
Invest some time in ensuring your submission looks professional. An underwriter will base their assessment on this document (as well as other information online, such as your website) and so if you can submit a quality presentation, you’re likely to secure the best terms.
- Shop Around For Cover
Many firms use an insurance broker to secure their cover, with the broker searching the market to find not just the lowest premium, but also the most acceptable terms.
Alternatively, you can head online where you’ll be faced with a wide choice of comparison sites and insurers offering terms – however they almost all exclude financial services firms, so using a broker tends to (currently) be the best way to reach the market.
- Consider Joining A Network
If you believe there is a risk that PI insurance cover may not be offered, either now or in the future, you might want to think about joining a network like Beaufort Financial (of course!) to have the security of a larger policy negotiated on your behalf.
If you need any further information, don’t hesitate to get in touch. Equally, if you don’t agree, I’d still love to hear from you.