Professional indemnity insurance is liability insurance that covers businesses when a third party, for example a client, makes a claim for financial loss, usually due to alleged professional negligence.
Many businesses regulated by the Financial Conduct Authority, including personal investment companies and mortgage and insurance intermediaries, must hold certain minimum amounts of FCA-compliant PII cover.
Even where there is no explicit regulatory obligation to have PII cover, any business providing advice or services to third parties should consider taking out appropriate PII. PII is an important risk management tool.
Do what is best for your business
The cost and availability of PII can vary greatly but fundamentally it depends on the insurer's view of your risk to them and their reward (your premium) for insuring you.
Focusing on how you can reduce the risks in your business will improve the view the insurer will have of you.
Hence, it is best not to think about ‘what can be done to secure the best PI deal’, but instead, ‘what is best for your business’.
The insurer’s overall appetite will be affected by market conditions but focus on controlling what you can influence.
Avoid nasty surprises
Making sure that your clients understand what is to be expected from your services and any recommended solutions reduces the chances of the unexpected happening.
Surprises are a common precursor to complaints. Good practices to avoid surprises include:
- Having a clear business plan;
- Knowing who your target clients are, and having appropriate services designed for them;
- When using a third-party's technology, products or services, ensure you undertake enough due diligence to understand the potential risks associated with each solution; and
- Consider what your client’s journey may look like. Could it be bumpy? If so it is vital your client understands that this may be the case, so if there are bumps in the road, your client is not surprised when they happen.
Cash flow modelling is one method of being able to demonstrate that you have considered a client’s future financial situation.
Modelling 'what if' scenarios can help you and your client assess what to do if something should happen.
No models are perfect but bumps are expected. Having a plan reduces chances of claims for surprises.
Due diligence on recommended solutions helps you understand and explain the potential outcomes to clients.
Cash flow modelling tools can also help you understand your client’s likely behaviours, and how they may react to a negative situation.
Understanding their individual attitude, capacity and tolerance to risk, and presenting specific recommendations to these, significantly reduces surprises for all.
Avoiding a claim is better than having to defend one. However, should a claim arrive, you should be in a better position to defend the recommendation.
Have a standardised approach and utilise technology
A standard, process driven, approach can help reduce human error.
Using technology can be helpful, especially with repetitive tasks. For example, software solution Money Alive is a good example of providing an engaging repeatable explanation of defined benefit risks, providing a consistent approach for advisers and clients.
Learn from mistakes
A well-handled complaint can lead to a happy client and improvements to a business's procedures, making them more robust for the future.
File reviews can provide similar results in a less painful way. Using client file reviews as a positive way to identify training needs for individuals or for process improvements provides more value than considering them for purely individual suitability assessments.
