FCA probe finds holes in brokers’ PII cover

The FCA has said that the professional indemnity insurance (PII) cover bought by general insurance brokers needs to improve following a thematic review into the cover.

It now plans to “engage with the entire sector” to iron out the problems it has found.

The regulator found that in some cases, whether by mistake or intentionally, brokers’ PII cover “failed to provide the cover for all of a firm’s activities that our rules require”.

Further, the FCA said that in a small number of policies, there were “inadequate” limits of indemnity or exclusions that “removed all cover or certain types of claim”.

In particular, the regulator found four types of exclusion clauses that gave it “significant concerns” that the cover would be below FCA requirements. The four types of exclusion clause were: Suitability of insurer (11 policies), Unrated insurers (two policies), Non-admitted insurers (13 policies), and Insurer insolvency (140 policies).

More widely, the FCA said it was unclear whether policies provided the proper cover for awards made by the Financial Ombudsman Service against firms or appointed representatives the firm might have.

These findings, coupled with the number of policies that included basic errors in wordings and out-of-date references, led the FCA to conclude that improvement to brokers’ PII cover was needed.

The regulator said: “The obligation to ensure their PII cover is right rests on the firms which buy it. We expect the PII policies of all GI intermediaries to comply with our rules and not contain inaccuracies, errors or exclusions which create gaps or omissions in the cover needed.”

It added: “We have already taken action on clear examples of non-compliance and will consider further regulatory action in cases of significant MIPRU [the prudential sourcebook for mortgage and home finance firms and insurance intermediaries] breach.”

“As part of our next steps to bring about improvement we will engage with the entire sector, primarily through the relevant trade bodies.”