FCA identifies concerns with PI cover for general insurance intermediaries

The FCA has announced the results of a review into general insurance intermediaries' professional indemnity insurance. The FCA found sufficient breadth in the market, but also identified some significant concerns about the cover firms had purchased.

On 5 December 2016, the FCA published its thematic review report on general insurance intermediaries' professional indemnity insurance (PII) (TR16/9). The review was undertaken to assess whether the individual policies purchased by a sample of firms met the requirements in the FCA Handbook.

The FCA's review, which involved a sample of 200 firms, followed up on 'isolated issues' that the FCA had seen in the course of its reactive supervisory work.  Primarily the review looked at whether the policies that firms had purchased  complied with the requirements in the Prudential sourcebook for Mortgage and Home Finance Firms (MIPRU), though the review also considered how effectively the general insurance (GI) PII market was functioning.

The FCA's key findings included the following:

• There is sufficient breadth within the GI PII market to provide choice and consequently firms were able to obtain cover.
• Firms were able to obtain cover for high levels of indemnity.  However. the FCA did find that in a small number of cases, firms did not have the minimum level of cover required under MIPRU, or had a policy excess greater than that permitted.
• The FCA was concerned that policies often contained exclusion clauses the effect of which could be to reduce the scope of the cover below that required by MIPRU. These related to four broad types of exclusion clauses (the suitability of the insurer, unrated insurers, non-admitted insurers and insurer insolvency).
• There were significant numbers of policies which had inadvertent gaps in coverage or inaccuracies.  The FCA concluded that this indicated that the policies had not been subject to appropriate review by the firms. These included exclusion clauses drafted too widely, and a lack of clarity about the scope of cover for Financial Ombudsman awards and the activities of appointed representatives that a firm might have.

Whilst the FCA is proposing to engage with the sector it also made clear that it expects all affected firms to consider the findings of this review.  In particular, the FCA made clear that it expects all GI intermediaries that were not part of the review to review their PII policies to ensure that they meet MIPRU requirements, and the FCA expects insurers and managing general agents, which provide PII to GI intermediaries, to review their products against the findings of the report.