regulator to remove 15-day end-of-policy extension and alter way costs are handled in court
The FSA is to make permanent the modifications it brought in November to professional indemnity insurance (PII) requirements in an attempt to encourage more providers into the market.
These changes will see greater clarity and uniformity in the wording used in policies, which the regulator believes has led to mis-understandings and mis-interpretation in the past.
It also aims to make the market more attractive to insurers by allowing greater use of excess in policies and eliminating a clause that allowed advisers to make claims up to 15 days past when their policy has expired.
The FSA has changed the wording in one clause so that PII underwriters and brokers are able to apply the excess on an 'each and every claim/each and every claimant basis'.
For example, in the past if one client had three separate claims, this could have been interpreted as one claim. Now it can be interpreted as three separate ones.
A provision, which at present gives firms a 15 day end-of-policy extension to gather possible claims and notify their insurers, is to be removed.
The regulator believes claims should be dealt with immediately and therefore sees no reason for the 15 extra day clause currently incorporated in policies.
Another proposal is to enable the excess within a policy to be applied to defence costs in the event of a court case.
This may lead to more intermediaries having to cover court costs but it could also encourage more PII providers into the market, the FSA believes.
At present in a claim that goes to court, the legal costs are paid by the insurer and excess is only applied to the compensation. The FSA believes both parties should contribute to these costs because this is in the interests of both the IFA and the PII underwriter.
Going forward whether the claimant or the IFA is successful, the PII underwriter will indemnify the firm for those defence costs, but will apply the policy excess to those costs. If the excess does not cover this, intermediaries could be liable for the remainder of the defence costs under the proposed changes.
One area the FSA has left alone is the insurers request for a rise in excess levels, according to Fay Goddard of Aifa. The minimum level of £5,000, or 3% of relevant income, is to remain as the FSA believes if it is raised it could be exposing firms to a position where they may not be able to cover the costs involved, she said.
The FSA plans to consult and forward its proposals for the PII market to the Office of Fair Trading (OFT). This is because the OFT is undertaking a fact-finding study into the UK liability insurance market and its review will encompass PII, examining why premiums have increased recently and investigate how the market is working. Its report on the market is due out in the spring.
The FSA is planning consultative workshops to tie in with the publication of this paper, to encourage awareness and discussion of the issues raised within it.
They will be held regionally and the organisation hopes that personal investment firms, PII brokers, underwriters and other interested parties will attend. IFAs and other interested parties will be sent an invitation.
For more information try www.fsa.gov.uk, or contact the FSA's events team on 020 7676 1000.
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