Insistent clients: Assessing the risk to PII cover

Aileen Lynch takes a look at PII cover in light of the threat posed by insistent clients and outlines how advisers can stay ahead of the game

Aileen lynch

The matter of obtaining professional indemnity insurance (PII) cover is always at the back of an adviser’s mind but a fresh set of factors must now be considered in light of insistent clients.

Any firm undertaking pensions freedom business fears the repercussions on the availability of PII and the level of premiums should insurers decide to restrict cover, or extend their requirements, in order to achieve cover for the business the firm writes.

This uncertainty is the ‘elephant in the room’.

As yet, insurers are not providing information on how they intend to proceed, however, this may change with claims experience under the new pension freedom regime.

Of course, this may take some time and, in the meantime, advisers are left with the conundrum of how to manage their business and the issue of ‘insistent clients’.

[su_note note_color=”#d2d2d2″ radius=”0″]

This issue has always been there, however in recent weeks and months this subject of discourse has increasingly come to the fore.

  • What is are insistent clients?
  • How should they be dealt with?
  • What effect will facilitating such business have on the business and will PII cover the liability if there is a claim?
  • How will the influence of the market affect premiums in the future, and will cover be available?

[/su_note]

And all of this is mixed in a vortex with added fees and levies and the general costs of doing business.

Address the risks

However unknown the outcome of pension freedoms are firms may protect themselves by following good business practice.

[su_note note_color=”#d2d2d2″ radius=”0″]

Such measures include:

  • Check your PII contract. Make sure you understand the limits of what is covered, the policy conditions and exclusions. Breaking a binding condition may invalidate the contract. Always answer all the proposal questions honestly and accurately.
  • Current proposal forms often refer to insurance investment bonds as well as defined benefit (DB) pension transfers. In future there may be more specific questions relating to defined contribution (DC) pension business and the type of activity you are authorised for and have undertaken, including whether you have or are in the process of applying for a ‘variation of permission’ (VoP).
  • Check your work at each stage of the advice process, or service proposition. Are you delivering on your promises? Are you adequately fulfilling the requirements of the contract with your client?
  • Seek confirmation from your client that they understand the advice you are giving them. Reiterate this in your correspondence to them using their own words.
  • Make notes of meeting outcomes and retain them on file / electronically. Send copies to clients and ask them to confirm your understanding of the meeting / conversation.
  • Agree any changes to advice or processes in writing. This may be by letter or email. This is important as either the regulator, FOS or your PI insurer may need to see the paper trail supporting your activity with the client.
  • Keep records of correspondence and phone calls.
  • Re-read emails and circulation lists before you send them. This will ensure they do not go to unintended recipients or cause an unintentional data breach, potential upset, or simple annoyance because the message is inappropriate.
  • Notify your insurer of any potential claim at the earliest opportunity, taking note of any specific notification requirements that may exist. Late notification or failure to notify is likely to have repercussions, and may result in the claim being declined.
  • Always maintain your PII. This may mean starting the renewal process earlier than planned if you suspect the market may be difficult or you have experienced a claim or potential claim

[/su_note]

What may affect the PII premium?

All insurers calculate risk differently; however all of them will look at areas of the firm’s business when calculating the premium. Broadly these are turnover (are there any peaks and troughs or trends in income), required limit of indemnity and level of excess, risk profile of the business, and the nature of the business.

[su_note note_color=”#d2d2d2″ radius=”0″]

Other factors that may affect an insurer’s view of a firm are:

  • The split of business – as some areas of work, will pose a higher risk to insurers than others. The split of business should reflect the expertise of the firm.
  • Regulation and compliance – insurers will look at how many cases are reviewed and the ratio of clients to staff and so on to assess risk in a similar way to the FCA.
  • Regulatory status – as a directly authorised firm you will need to demonstrate a strong control of your compliance procedures.
  • Complaints history – the frequency of claims, the number and type of complaints recorded in the complaints log, and are there any trends emerging together with what action the firm has taken to prevent future claims.
  • Claims history – notifications and complaints should always be declared and are not necessarily viewed negatively, especially where effective action has been taken to avoid a repeat of the issue.
  • Client facing individuals – what experience, training and what are the areas of expertise of key people.
  • Products and services – this relates to the type of service you provide. Do you promote to a wide audience or are you in a specialist, niche market? And what effect does this have on the business model of the firm and ultimately its culture.

[/su_note]

In conclusion, market uncertainty is unlikely to disappear in the short term. Financial planning is a long-term proposition, errors are made, but if good records are kept the issues can be understood and dealt with.

Aileen Lynch is head of technical at Compliance First