Five top tips for renewing your professional indemnity insurance
Julian Brincat, Head of IFA Practice, features on the latest edition of threesixty's roundup, giving his top tips for Financial Advisers to consider when approaching their Professional Indemnity Insurance renewal. Here's what he had to say:
Defined benefit (DB) transfers and Professional Indemnity Insurance (PII) have been the hot topic since pension freedoms were introduced in 2015 and with this increasing demand, advisers have been heavily involved. There are now more advisers with relevant permissions and just under 100,000 DB transfers took place in 2017, around 25% more than 2016, equating to over £20 billion (Source: FCA). This has clearly had an impact on the PII market and the renewal process.
The FSCS blamed a rise in DB transfer claims for a levy increase and the FCA has been requesting data on DBs from firms. On assessing advice from 13 firms they deemed less than half as suitable. This together with no clear guidance from the FCA as to what they consider to be good practice have all contributed to insurers finding it difficult to assess the risk in this area.
Firms who have been involved in DB transfers are achieving varying levels of success at their PII renewal. There are many who are managing to maintain full cover, maybe experiencing a premium increase from last year. However, there is the potential of an increased excess (usually in the region of £15,000 to £25,000 each and every claim) but some firms are having to take a reduced limit of indemnity for this activity (usually around £500,000 in the aggregate) whilst there are those that face full exclusions for this activity.
There are some key points to consider when approaching your renewal which will help maximise your chance of getting the best out of the process. This is especially relevant if you expect you may have to change insurer due to a withdrawal or to avoid the possibility of exclusions.
1. Start your renewal process early
One of the most significant factors for firms receiving onerous terms is when their proposal form is submitted shortly before the renewal date causing last minute issues with requests for further information, not enough time for further discussion or to seek alternatives. Find out, well in advance (at least 2 to 3 months) if there have been any developments with your insurer and let your broker know if there have been any updates in your firm that may impact your forthcoming renewal.
2. Ensure your broker is experienced in dealing with IFAs and has a good understanding of your firm
There are extensive benefits to working with an experienced broker who fully understands your business and the IFA PII market. A simple conversation over the phone or meeting with your broker should reassure you on this.
3. Discuss and agree a good strategy
Sending your submission to too many brokers potentially means the same insurer is being approached multiple times with varying standards of presentation which could negatively affect your renewal process. Your broker should guide you as to the strategy including insurers they will approach and the potential outcomes.
4. Presentation is key
The correct presentation to insurers first time is very important. A rushed, untidy proposal form with poor responses or ignored questions will impact the way your firm is perceived. Ensure that your submission is clearly completed, percentages totalled, and any supplementary information is clearly labelled. If you have had any noticeable change from last year (spike or drop in income, claims, new activity etc) provide additional information to your broker. Request your broker reviews the information before approaching insurers to ensure there is no missing information.
5. Keep in touch with your broker
Once you commence your renewal process ensure that you remain in regular communication with your broker and establish deadlines to receiving terms to ensure you have plenty of time to decide.
To support your application, you should provide:
- A separate DB questionnaire to be completed. This is requested by most insurers
- Information as to how you deal with any introductions from other IFAs or insistent clients
- A documented internal process on advising on DBs. If you have one submit it to reinforce your application
- A spreadsheet of all your DB transfers
- Information on any external companies you use for pre or post-sale checks
- Be prepared to submit an example of a suitability report where you have advised a client to transfer if requested
Hopefully this will help you plan and prepare for your renewal and provide you with a bit more insight into how the PII market works. There are no two ways about it, the market is currently difficult and less straightforward than it has been for a few years, but by being proactive and concentrating on your renewal, you should effectively minimise any negative outcomes and we can all hope that the market gets easier in the years to come.