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What Mortgage Brokers need to know when arranging PII

ProfilePI has been placing mortgage brokers PI cover for a number of years with access to markets and our own exclusive scheme.

Our MD Scott Clay, is a CeMAP qualified broker himself, so we like to think we know a thing or two!

Here is a quick rundown of what Mortgage Brokers need to know when arranging their PI insurance. It is an FCA requirement, but it’s also protecting your business and your reputation, so it’s worth making sure you have maximum protection at the best value.

Make sure all your work is covered

Sounds obvious but make sure the Policy Wording covers all the work you do, as standard policies may not automatically do this. Remember to also check the Exclusions section. This is often found at the back of the Policy Wording and can exclude elements of your work.

For example, if you arrange buy-to-let or commercial mortgages, make sure that would be covered in the event of a claim. If you also do additional work such as will writing, make sure this is stated on your policy. Simply speak to your broker or underwriter and ensure that coverage would apply. Large areas of your work may not be automatically covered, so be sure to check.

What limit of indemnity?

Professional Indemnity Insurance is arranged on a limit of indemnity basis. A ‘pot’ of cash to pay any claims made during the policy term. The FCA minimum limit of indemnity for Mortgage & General Insurance brokers is £1,750,000. For brokers who do not arrange any insurance products, minimum limit is £500,000.

So long as you satisfy the minimum FCA requirements, you will comply with regulations. However higher limits are available and what limit to buy, is a question many brokers must consider. The higher the limit, the more cover, but also the higher the premium. Try to avoid buying based just on price, but we understand businesses have to budget.

Consider the amount a likely claim might be. A claim is likely to far exceed the fee you charged your client. For example, if your work delays a house move, expect your client to claim for the full loss plus expenses and costs.

Cover for past work

Professional Indemnity is a Claims Made policy. A professional indemnity policy will respond to a valid claim when it is made against you. However the work or advice you gave may have been months or even years prior.

Be sure to check that your Professional Indemnity policy has a Retro-Active date stated on the Schedule of Insurance. Any wrongful acts taken place before this date, may not be covered under the policy.

Some policies will not state a retro-active date, in which case cover may apply to all activities since the company formed or started trading. But be sure to check this with your broker or underwriter

Cyber Insurance

In just 18 months’ time new Data protection regulations will come into force and effect every business across the UK. Capturing, storing and transmitting data will be tightly controlled.

Your client fact-finds will contain a vast amount of personal and sensitive data including bank account details, address details, ID documents and salary details. As custodian of this data, you must be able to demonstrate you have taken basic steps to keep this data secure.

Ensure your PI policy includes Cyber Insurance to protect you from claims due to a Cyber Data Breach. This can happen due to accidentally releasing data or sending an email containing data to the wrong person. It will also cover external hacking attacks and computer failure. In future, you will be liable to report Data Breaches and insurance can help cover the costs of notifying regulators, clients and help manage the fall-out.

Run Off Cover

Professional Indemnity is a ‘claims made’ policy that means it responds to claims when they are made, and not when the alleged wrongful advice or work was done. A client who took a mortgage two years ago, may decide to bring a claim against you following the discovery of new information, years later. Your present day policy will respond to the claim regardless of who insured you at the time.

What happens when you retire? If you simply cancel your PII policy, there will be no policy to respond to a claim. You would face the costs of the claim from your own pocket. Converting your PII into run-off cover ensures a policy remains in force, ready and waiting to respond to a claim should one be brought against you, allowing you to enjoy retirement with peace of mind.

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