Tech firms need professional indemnity

Professional indemnity insurance maybe something more commonly associated with traditional professions, but it's just as applicable to tech and media firms. It's designed to protect firms from allegations that they have provided inadequate services, designs and advice, and any liabilities that might subsequently arise. It also covers areas such as the loss of data, breaches in copyright and professional negligence.

As I've noted previously, 2018 will mark the introduction of the General Data Protection Regulation (GDPR) in May. This will create the prospect of eye-watering fines, up to £20 million or 4 per cent of global turnover, for data breaches. Tech firms handling data for clients will be exposed and it's likely that customers will also try to spread their GDPR risks to suppliers.

The other emerging risk of 2018/19 is Brexit which may complicate doing business in the EU and open firms up to more international trade. More business opportunities are, of course, good news, but insurance requirements can vary significantly, be that limits, legal liabilities, risks or even what's covered. And that's before currency, legal or language complications are considered. Navigating these can be minefield and firms should turn to their brokers for advice.

The above risks may be mitigated by professional indemnity cover, but its main purpose is to protect firms from breach of contact claims which currently make up the vast majority of disputes involving tech firms.

Every year the commercial world becomes more litigious and contracts ever more complex. Contract management is a Byzantine area with clauses becoming increasingly nuanced. This is a particular challenge for the ICT sector as firms can experience rapid growth and are designed to scale-up to meet demand.

Firms, which are understandably unwilling to turn away business, can find themselves taking on too much work. This creates tensions in itself, but it means there may not be the time or resources available to absorb the full implications of a new contract.

Scaling up to meet demand can also lead to a reliance on third parties and freelancers who may not be accustomed to your company's systems and processes. A mistake doesn't need to be deliberate to provide a claim for breach of contract.

The flip side of our more litigious world is a society that's more concerned with reputation. If required professional indemnity policies can also cover the cost of PR support to help protect and redress reputational damage.

No matter how good your relationship with a client is, they are likely to claim if your mistake causes significant financial damage. Professional indemnity insurance is your safety net in this eventuality.

PI insurer zones in on DB transfers with lengthy questionnaire

Professional Indemnity (PI) insurers are keeping a close eye on financial advisers undertaking defined benefit (DB) transfers by asking them to complete a supplementary questionnaire as part of their renewal process.

The PI market has been questioning advisers extensively on their pension transfer business.

Informed Choice managing director and Chartered financial planner Martin Bamford received a supplementary questionnaire on DB transfers from his insurer Markel International when renewing his PI insurance.

The questionnaire asked for details of each transfer case since pension freedoms in April 2015, including the risk level of the client and reasons for recommending a transfer.

Bamford was also asked to provide information about the number of cases where Informed Choice recommended a client did not transfer from their DB pension, and what this was as a percentage of the total.

The questionnaire from the insurer bears similarity to the extensive questionnaire sent from the Financial Conduct Authority in December to 45 advice firms, which also asked for details on all pension transfer cases since the introduction of the freedoms.

"DB pensions advice is not a big focus for us; we made fewer than 40 recommendations in the past three years, and screened out a lot more enquiries who were simply looking for an adviser to sign off the advice," said Bamford.

While Bamford said the cost of the insurance hadn't gone up dramatically, the excess applied to any DB pensions advice was three times as large - from £5,000 last year to £15,000.

"What PI insurers view as high risk product areas tends to change on a regular basis, depending on what's topical," he continued. "No doubt DB pensions will be flavour of the month for a while longer and could create challenges for IFAs who are submitting their PI insurance renewals.

"I would suggest all IFAs need to start reviewing their DB pension transfer advice files now, to collate relevant information like risk levels and critical yields, to make their renewal application easier to complete. It will also save time when the FCA asks for similar data later in the year."

Market-Wide Probe

Markel International told Professional Adviser the wider PI market was paying closer attention to DB transfer business.

"Like the rest of the market, we've been asking more questions about the exposures we face from the advice that financial advisers give to do with DB transfers," it said.

"We started doing this about a year ago and continue to work to deepen our understanding so that we can provide the right cover at the right price."

SRA to cut professional indemnity limits - cheaper prices under new plans

Regulator is proposing a large reduction in minimum cover 

Solicitors are to cut professional indemnity limits under new rules proposed by their regulator.

The Solicitors Regulation Authority believes it will help smaller law firms bag more affordable premiums. 

The current rules mean that law firms must have a minimum cover of £2m for a single claim, rising to £3m for firms with certain structures.

But the SRA says data proves these levels are ‘too rigid’. The SRA instead proposes:

  • Reduce the maximum single claim limit to £500,000 (£1 million for conveyancing)
  • Keep the need for a six year run off period of insurance after a firm closes but capping the overall level of cover at £3m for firms that have done conveyancing work and £1.5m for other firms
  • Remove the need for compulsory insurance to include cover for large commercial clients

The SRA says 10 years of PII claims data reveals that 98 percent of claims are settled for less than the proposed £500,000 single claim limit. The data also shows that half of all claims relate to conveyancing matters.

SRA chief executive Paul Philip said: “Ten years of data shows our current one size fits all arrangements are too rigid.

”Our proposals will help firms - particularly small ones - make sure they are not paying more than they need to protect themselves and their clients.

”The public would still have an appropriate level of protection, while potentially benefiting from lower costs and more choice.

“We recognise this is a complex area, with no easy solutions. We are open to options, and keen to hear views on how we make sure we get the balance of protections right.”

The deadline for the consultation ends of June 15.