What is professional indemnity insurance?

Professional indemnity insurance (PII) is liability insurance that covers businesses in the event that a third party claims to have suffered a loss as a result of professional negligence.

What are the minimum FSA requirements for firms?

1. Specified minimum levels of indemnity for both a single claim and aggregate claims per annum.
2. For IMD firms, the minimum limits of cover (set out in euros) must be met at the date of taking out the policy and the date of renewal.
3. Continuous cover since the start of your firm’s authorisation.The policy does not contain a specified start date which excludes business conducted after the firm was authorised but prior to the specified start date (which is called a retroactive start date).
4. A policy excess (retention) that is no higher than the minimum level specified.
5. Cover in respect of Ombudsman awards made against the firm.
6. The policy details are reported correctly on the Retail Mediation Activities Return (RMAR), which is the relevant FSA regulatory report.

Why is PII important?

1. It provides additional financial resources from which firms can pay justified claims.
2. It helps to prevent insolvency and excessive claims on the Financial Services Compensation Scheme, which is funded by firms that are still trading.
3. For insurance intermediaries, it is required by the Insurance Mediation Directive (IMD).

How do I get PII?

Insurers rarely deal directly with the firms for whom they provide cover.  Firms generally buy PII cover through specialist insurance brokers.

Please see our list of firms that act as brokers and underwriters/insurers. Please  note that inclusion in this list does not constitute endorsement by the FSA. This list includes firms that have agreed to publication on this site.

There are many brokers, but the number of insurers offering cover is relatively small. So if you use a broker, check which insurers they place business with, as some do not deal with all insurers. If you are having difficulty getting cover, you need to make sure you are getting access to a wide range of insurers, possibly through a number of brokers..

What about the Lloyd's market?

You can seek quotes from Lloyd's syndicates through an accredited Lloyd's broker or a broker with a sponsoring arrangement. The Lloyd's website provides a directory of all Lloyd's accredited brokers.

What do insurers look at before providing cover?

Insurers assess risks differently but often look at four areas of an authorised firms business when calculating the premium:

1. total income;
2. required limit of indemnity and level of excess;
3. risk profile of the business; and
4. nature of the business.

Changes to professional indemnity insurance (PII) minimum indemnity limits for firms carrying on insurance mediation activities

Intermediaries which give advice on or sell insurance based products (both investment and non investment types) will be subject to new PII minimum indemnity limits from 1 March 2009. The limits have been changed, as required by the Insurance Mediation Directive (IMD), in line with the increase in the European Index of Consumer Prices, over the five year period since the IMD's entry into force.

The minimum limits for firms is €1,120,200 for a single claim and €1,680,300 in aggregate. PII indemnity limits for firms not subject to the IMD remain unaffected.

Clarification of the professional indemnity insurance (PII) minimum indemnity limits when cover is in a currency other than the Euro

We expect PII cover taken out in a currency other than the Euro to meet the minimum indemnity limits when converted into Euros both when the policy is first effected (ie agreed) and at renewal. To ensure this you should use the appropriate exchange rate on the relevant day.

When do I need to notify my PII insurer of a potential claim?

As a matter of good practice we would expect firms to notify their insurer, of a potential claim, at their earliest opportunity. Firms should check the terms and conditions of their individual insurance policy for specific information on their insurer's notification requirements, especially if failure to notify (or late notification) causes adverse repercussions such as withdrawal of insurance cover.

For more information look at our PII factsheet, and our list of some brokers and insurers who provide.

RMAR Section E Payment Protection Insurance
PII - new limits
PII Reporting: Retroactive Start Date