01 Insurance

Question 1

what is PII and what its purpose

Answer 1

1. Protect firms against losses resulting from professional negligence, errors,and/ or omissions which casue financial loss to a third party
2. Ensures a firm’s client do not suffer financial loss which the firm cannot meet

Question 2

what does RICS state about the PI Insurance

Answer 2

Rule 9 of the RICS Rules of Conduct for Firms
Requires all regulated firms to be covered adequate and appropriate PII which meets the standards approved by the regulatory board

Question 3

What should a PII policy contain?

Answer 3

1. must be on a claims-made basis
2. must be on an each and every claim basis
3. policy wording is written on a fully civil liability basis
4. underwritten by a listed insurer
5. Covers past and present employees
6. Run-off cover
7. Minimum level of indemnity required by the RICS

Question 4

Explain the term ‘claims made basis’.

Answer 4

A claims made policy will pay out for any valid claim made during the (typically 12-month) policy period, regardless of when the incident or alleged breach of duty actually occurred.

Question 5

Explain the term ‘each and every claim basis’.

Answer 5

the limit of indemnity covers each claim individually (instead of accumulatively for that year, which is referred to as ‘in the aggregate’)

Question 6

What does having the PII policy written on a full civil liability basis mean?

Answer 6

A fully civil liability basis means if the claim isn’t specifically excluded, it’s included (as opposed to a ‘negligence only’ policy, where if a claim is not specifically included, it’s excluded)

Question 7

What happens to PII when you retire?

Answer 7

Run-off cover ensures firms, members, and customers are not exposed to the financial detriment in the period following a firm ceasing to trade or a member’s retirement.

Question 8

How would you determine what is sufficient in terms of PII runoff cover?

Answer 8

Should be for a minimum of 6 or 12 years, depending on how the contract was executed, however negligence claims can be made up to 15 years after work was undertaken - advice from an insurance broker should be sought as to whether to maintain for the full 15 years

Question 9

What are the minimum levels of PII based on?

Answer 9

Minimum level of indemnity is based on the firm’s turnover in the previous year (or estimated for a new firm)

Question 10

What are the minimum levels of PII required?

Answer 10

1. £100,000 or less turnover = min. £250,000 indemnity
2. £100,001 to £200,000 turnover = min. £500,000 indemnity
3. £200,001 and above turnover = min. £1,000,000 indemnity

Question 11

What is meant by the term ‘maximum level of uninsured excess’?

Answer 11

The part of each claim the firm must pay itself

Question 12

What are the levels of maximum uninsured excess?

Answer 12

1. Up to and including £500,000 indemnity = the greater of 2.5% of the sum insured or £10,000
2. Over £500,000 indemnity = 2.5% of the sum insured

Question 13

What is generally excluded from PII cover?

Answer 13

1. Material damage
2. Theft
3. Personal injury
4. Damage to third party property
5. work carried out prior to the inception of the policy
6. insured vs insured claims (i’e a compnay suing an employee for professional negligence)
7. Insolvency

Question 14

What is the RICS Assigned Risk Pool?

Answer 14

1. Insurance facility for regulated firms that find themselves unable to obtain PII in the normal market
2. Firms can remain in the ARP for a maximum of 3 years, where they will be audited and guided in how to amend their business procedures/practices ready to obtain market PII again.

Question 15

What should you do in case of a potential claim on your PII?

Answer 15

Must notify insurer in the event of:

1. An actual claim
2. A written or verbal threat of a claim
3. Any circumstance that the firm has reason to believe may result in a claim
   Any complaint notified via the firm’s CHP