The Department for Constitutional Affairs has proposed claims management firms that deal with endowment compensation claims should be required to have professional indemnity insurance.
In its latest consultation paper on claims management regulation, the DCA says there is no strong case for businesses that merely refer cases to have PI cover because they are generally very small and in most cases do no more than refer cases to claims management businesses or to solicitors.
But where businesses represent clients, the DCA says there is a stronger case for requiring them to have PI insurance because the work they do is analogous to that of solicitors, insurance brokers and IFAs.
Examples of firms that represent clients are those dealing with endowment and criminal injuries compensation claims.
The DCA states: “If they give bad advice or represent their clients ineffectively then they could cause their clients loss. A number of businesses in this category already have PI cover, indicating that cover is, at least to a certain extent, available in the marketplace.”
It proposes to replicate the Financial Services Authority’s (FSA) requirements for general insurance intermediaries to claims management firms, which is cover for individual claims up to 1 million euros with an aggregate limit of 1.5m euros or 10% of annual income if higher.
The DCA also suggests businesses should be allowed a reasonable time to arrange PI insurance after the claims management regulations come into effect.
It states: “Authorised businesses will be required to submit a self-certification compliance statement when they apply to have their authorisation renewed for the year beginning 1 March 2008. It would seem sensible to tie in the requirements for PI cover with this statement: that is businesses that are required to have PI cover would be required to state that they have it in their self-certification statement.”
The consultation paper will close on 25 May.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7034 2680 or email [email protected].IFAonline
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