Renewing professional indemnity (PI) insurance is one of the biggest challenges facing financial advisers in 2019. Substantial increases to premiums, policy restrictions, and higher excesses have become commonplace in recent months as insurers continue to be nervous about defined benefit transfers.
So, what can you do to make your PI renewal go more smoothly? In this blog we look at the problems facing advisers and some steps you can take to make your renewal less stressful.
Why it’s getting harder to renew your PI insurance
The Financial Conduct Authority (FCA) has been taking a growing interest in this area. Last year the regulator reviewed 13 firms and judged that fewer than 50% of DB transfer cases were clearly suitable. Only last week they released an update which reiterated their concerns about the way the market is functioning. On top of that, advice to British Steel workers that saw their pensions transferred into high-charging funds though unregulated introducers made the national news headlines.
These negative stories and the volume of DB transfer business that is being conducted have made PI insurers nervous. Furthermore, this April the current Financial Ombudsman Services’ (FOS) limit increased from £150,000 to £350,000 for complaints about actions by firms on or after that date.
These and other factors have resulted in a range of issues facing advisers looking to renew their PI insurance:
- Higher premiums – a year ago FT Adviser 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
- Higher excesses – Money Marketing reports that some advisers have seen DB transfer coverage excesses increase tenfold on renewal, from £10,000 to £100,000
- Restrictions – Some PI providers are placing restrictions on the volume of pension transfer business they will allow small advice companies to carry out. Advisers are being told that they can only carry out a fixed number of DB transfers in a certain year, and that if they want to do more, they must contact the insurer
- Shorter renewal terms – some insurers are now offering renewals for only 12 months, rather than the previous 18-month period.
As an example, Sir Steve Webb, Director of Policy at Royal London, said that one IFA he had spoken to had been told they could only obtain PI renewal if their annual premium was increased from £13,000 to £50,000, and they agreed to an excess on each individual DB transfer case of £35,000.
While it may be true that the actions of a few advisers are having an impact on the PI renewals of firms across the UK, the truth is that getting your PI renewed can be stressful. So, here are five steps that you can take to help secure decent terms.
1. Start the process early
Don’t leave your PI renewal until the last minute. Start the process as early as you can – up to three months or more before your renewal date.
This gives you time to scour the market and to find the most appropriate cover for you. If you leave it late, you could end up paying more for the cover you need as you simply need to ensure the cover is in place.
2. Prove ongoing service delivery
Securing acceptable PI terms is easier if you can prove that your advice is watertight and that your clients are receiving the service and reviews that have been promised.
In order to prove that your ongoing service is excellent, you need to evidence this. Apps such as Trailblazer Tracking let you record every interaction you have with your client. You can show that they are receiving the level of service they expect, meaning if you receive a complaint further down the line you can demonstrate that you did what you said you would.
3. Stop doing DB business
One way of smoothing your PI renewal is to stop advising on pension transfers altogether.
However, this may not immediately reduce the cost of your cover. There could well be a significant time lag between the advice you gave and a subsequent complaint – up to years in some cases. This means that you could still receive complaints in the future as clients come to believe that they may not have received the correct advice.
Insurers know this, and so the cost and terms offered by PI providers will already take into account the possibility (and potential cost) of future complaints.
In addition, ceasing DB business may not be the best thing for your firm. If your aim is to give holistic pension advice, an inability to recommend one potential solution may not sit well with you or your clients.
4. Move to a network
If you’re directly authorised, then one way to secure the PI cover that you need is could be to join a network.
Some advisers would rather shelter in the safe harbour of the PI insurance offered by a network than try and navigate a stormy sea alone!
5. Improve your submission to PI insurers
Insurance is all about managing risk. So, if you complete a full and comprehensive proposal that demonstrates to your insurer that you have robust processes in place, you will increase your chances of getting competitive cover.
Ideally, you should have a written document that outlines your philosophy around DB transfers 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.
Andrew Tully, Technical Director at Canada Life calls this ‘an opportunity to promote your business’. He says: “You want all relevant information set out in a clear, attractive, easy-to-understand format, highlighting your (and other key personnel’s) availability to discuss any areas further.
“Demonstrating why your firm is a better risk than others helps reduce your (and your clients’) costs and means you can continue to be in a position to help people in this complex area of business.”
It can also pay to take a proactive approach to your broker or insurer. Stay in close contact with then to discuss your business and how you’re managing risk, and you may have fewer nasty surprises on renewal.
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