While the FCA found there was choice within the general insurance PII market and firms were able to obtain a high level of indemnity cover and appropriate excesses, with most firms in the sample meeting MIPRU requirements in this respect, FCA was concerned by exclusion clauses in policies (most commonly insurer insolvency clauses but also suitability of insurer and unrated and non-admitted insurer clauses) which could have the effect of reducing the level of cover below that required.
The FCA also identified gaps in coverage and inaccuracies which indicated to it that policies had not been appropriately reviewed by firms, intermediaries placing the cover, or by the insurers and managing general agents (MGAs) providing the cover. The gaps and inaccuracies identified included:
- Exclusion clauses intended to exclude investment-related activities but drafted in such a way as to exclude general insurance intermediation itself – thus defeating the purpose of the cover;
- A lack of clarity as to whether policies covered appointed representatives of the intermediary or awards by the Financial Ombudsman Service (FOS), thereby risking not meeting the requirements of MIPRU; and
- Out of date language with policies referring to such things as Y2K compliance, regulatory bodies which were no longer in existence, and to out of date FOS compensation limits.
Next steps for firms
The FCA confirmed that where non-compliance with MIPRU was identified in the sample of 200 firms, the most concerning issues had been raised with the firms and corrective action taken, although the FCA has stated that many of the insurance policies of these firms still contain troubling features.
The FCA also flagged to the wider population of over 6,000 authorised general insurance intermediaries that they should be reviewing their PII cover and ensuring their arrangements were MIPRU compliant. It also follows that the providers of those policies; insurers and MGAs, were expected to carry out the same exercise.
The FCA intends to engage with the relevant industry trade bodies to ensure that there is a clear understanding of the issues raised. However, responsibility for ensuring compliance with FCA rules will, of course, remain with individual firms. FCA has been clear that, having put market participants on notice of FCA’s concerns and expectations in this area, it will consider if further regulatory action is required in relation to those firms where issues have been identified and where similar issues are found in future. The risk of FCA taking such further action will of course be greatest where any such failings identified are perceived as carrying the risk of, or have in fact led to, customer detriment.
FCA views PI cover as providing an important protection to firms and, importantly, to their customers in the event of professional failings by the firm.
The review makes plain that the policies of some general insurance intermediaries contain the unintended, such as exclusion clauses which remove the heart of the cover, and others are not sufficiently clear as to what is and is not covered. Participants in this market are therefore advised to review their policies.