Expert View: New E&O awards limit: is your business covered?

By Richard Webb, director at Manchester Underwriting Management

The number of complaints about financial services fell by 5% in the second half of 2018, the FCA has just announced. PPI has been a large factor in the level of complaints but, if you remove these, the FCA received a total of 2.41 million complaints in the second half of 2018 against 2.33 million in the first half.

While general insurance is just one part of the financial services industry, hopefully this is a sign that the insurance sector is improving. Well over 90% of complaints received are resolved within the eight-week time limit, with 37% resolved within the first three days of a complaint.

Change to awards limit

The announcement comes hot on the heels of the recent changes to the FOS awards limit. This increased the maximum award from £150,000 to £350,000 to cater for the higher value complaints received by the FOS. During the consultation stage some large numbers were thrown around which grabbed people’s attention. The FCA estimated that up to 2,000 complaints could fall under a higher limit of £350,000, potentially resulting in an increase in awards of up to £113m. These numbers have been adjusted and it is estimated 500 further eligible complaints is the more likely number with the increase in awards between £21m and £47m.

Brokers’ E&O premiums

So, who will pick up the bill for the increased costs? Some of it will flow through to professional indemnity policies and in particular those who underwrite independent financial advisors and personal investment firms have flagged this as a concern. On the general insurance side, the increase could also impact brokers’ own errors and omissions (E&O) premiums.

One of the intentions of the FOS complaints process is to enable those who may not be in a position to bring a claim using traditional methods such as a solicitor and the courts to bring their complaint to the Ombudsman. A complaint with a value of £350,000 is a sizeable matter and may be complex in nature.

This does raise questions as to whether the FOS can handle such complaints, a point the FCA has taken on board. However, it does mean that potential complainants have a  cost-effective route to pursue a complaint of high value.

Brokers’ own E&O policies require notification of claims and also circumstances that may become a claim. A complaint could fall into the definition of a circumstance, so it is essential that a broker makes sure they have made their E&O insurer aware of any complaints that might stray into this area.

It is also worth bearing in mind that a complaint that falls into the new limit may be complex in nature, but if there are weaknesses to the defence it may be worth settling sooner rather than later, even within the eight weeks time limit. But to do so, a broker would need to have their E&O insurer firmly on side.

Check your wording

It may also be worth checking your E&O wording to make sure that it reflects the new £350,000 limit. As a Biba scheme provider, the MUM Brokers’ E&O product was designed with input from Biba itself to make sure that these areas get identified and the policy responds as it should. Hopefully, the fall in the number of complaints at the end of 2018 is a sign of things to come, but the increased limit may have more of an impact for general insurance than some might expect.