Compliance Refinery has published its four top tips for advisers when it comes to professional indemnity (PI) insurance.
The firm’s PI Insurance briefing document says some PI providers have yet to fully adapt to the incoming regulatory regime, and that while FAP covers are starting to be discussed, they won’t all be in place until March.
PI covers claims for third party financial compensation resulting from an alleged breach of professional duty and will usually cover the cost of an expert to defend the policy holder.
“It is important to remember that you still have to defend meritless claims, these can be expensive,” says Compliance Refinery.
“Class A FAP’s are simple and will remain similar to the current regime,” says the firm. “However, it gets more complicated with Class B and C licenses and authorised bodies. A FAP will certainly require cover.
“The idea that an adviser has separate cover which they control is very important. Generally, the owner of the policy is the person being defended. If it is the FAP only, advisers may feel without representation or be a scapegoat by a FAP trying to protect the brand. We have seen evidence of this in the past with various product providers.”
Working with more than one FAP is also covered with the firm suggesting advisers engage their PI Insurer early as these are considered complex and likely require customised cover.
…advisers may feel without representation or be a scapegoat by a FAP trying to protect the brand…
“The more complex your business model, the more complex and expensive your insurance structure,” says the firm.
Other advice from the company includes naming all your entities on the PI policy.
“A complex business structure needs to engage [with a PI provider] now or you will risk the potential of not receiving cover, if left too late,” says the Compliance Refinery.
Its briefing paper says the PI market is made up primarily of local insurers such as NZI Liability, Vero Liability, Chubb, AIG, Zurich, QBE, and Berkshire Hathaway among others.
“The market for financial advisers is very limited due to the appetite of insurers,” says Compliance Refinery.
Compliance Refinery’s top PI tips for financial advisers are:
- Read your policy: Know and understand the wording, manage the risks and understand the areas not covered by your PI.
- Notify, notify, notify: Call your PI provider early in the complaints process.
- Keep good records: Client file notes are often the difference between a short defense
- and a long, stressful expensive one.
- Review your business structure: Assess your business structure and who needs PI cover.
Download the full Compliance Refinery PI briefing document here.