Insurance

Question 1

What is professional indemnity insurance

Answer 1

Protects firms against losses resulting from professional negligence, errors and/or omissions which cause financial loss to a third party
Ensures a firm’s clients do not suffer financial loss which the firm cannot meet

Question 2

What do you need to do if you start your own business?

Answer 2

Inform RICS
Appoint a contact
Apply for RICS Regulation
Have at least 25% principals
Agree to observe and comply with RICS Rules of Conduct for Firms, including working to RICS standards.
Insurances (P.I, Public Liability, Employers Liability)
Action & training to deal with Clients Money
Complaints handling procedures and training

Question 3

What is run off cover?

Answer 3

Ensure that firms, members and their clients are not exposed to financial detriment in the period following a firm ceasing to trade
RICS requires firms to obtain fully retroactive run-off cover

Question 4

What are the minimum levels of PII required?

Answer 4

1) £0 - 100k = £250k
2) £100k - £200k = £500k
3) >£200 = min. £1m

Question 5

What is the minimum level of run off cover?

Answer 5

Consumer claims: £1m

Non-consumer claims: adequate and appropriate cover

Question 6

What is the maximum uninsured excess?

Answer 6

Dependent on limit of indemnity:
Less than 10m turnover in year : greater sum of 2.5% of the sum insured or £10k
More than 10m turnover in year : no limit

Question 7

Why do RICS members need P I (if they own a business)?

Answer 7

To meet standards approved by the regulatory board
To protect them and their clients from losses resulting from professional negligence

Question 8

What is fully retroactive?

Answer 8

It means that the policy covers ALL work done in the past by the policyholder and makes the policy fully retroactive.

Question 9

What is adequate for run off consumer claims? (Type of claim basis)

Answer 9

£1,000,000 for a limit of 6 years

Question 10

How long should Run Off Cover apply?

Answer 10

6 years as recommended by the RICS.

Risk will reduce over time of 6 years

Question 11

What is the premium for P I?

Answer 11

Typically between 1 - 5% of turnover depending on what it is covering

Question 12

What is the premium of P I based on?

Answer 12

Size of Firm
Experience
Nr of partners
Type of projects
Claims history

Question 13

What is run off pool?

Answer 13

Firms that are unable to obtain run-off from their incumbent insurer or the open market will be able to apply for coverage to the Assigned Risk Pool which is in line with RICS

Question 14

What should a PII policy contain?

Answer 14

1) Any one claim or aggregate plus unlimited round the clock reinstatement basis;
2) each and every claim basis
3) full 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
8) Fully retroactive
9) Wording in line with RICS requirements

Question 15

When should you let your PI insurer know about a complaint?

Answer 15

This depends on your PII policy.

• PII policy normally obliged to advise insurer on any situation which may give rise to a claim.

Question 16

How to avoid P.I claims?

Answer 16

Refer to scope of services
Use RICS guidance
Keep record of all work done
QA procedures

Question 17

How does insurers limit liability?

Answer 17

Caps on exposure arising from a claim

Question 18

What case law is applicable to P.I.I and run off cover?

Answer 18

Merit vs Babb 2001
Mr Babb’s employer no longer traded
No Run Off Cover
Merrett could pursue babb individually for losess

Question 19

What happened in Merit Vs Babb 2001

Answer 19

1) Babb completed a valuation as an employee of a company for a house purchased by Merit
2) Valuation was later found to be negligent
3) Original company ceased to exist and therefore PI was cancelled
4) Court ruled that Merrett could pursue individual (Babb) for losses

That’s why run off cover is extremely important.

Question 20

What is Risk Liability and Insurance?

Answer 20

Guidance Note

Question 21

When would notify your PI insurers on a complaint?

Answer 21

Anything that could result to a claim
Negligence
If it reaches external stage

Question 22

What do ‘aggregate basis’ and ‘each and every claim’ mean.

Answer 22

The aggregate is the maximum the insurance company will pay, regardless of claim quantity over a a specified period. Once this limit is reached the insurer wont pay any more claims.

Each and every claim - there is limit that applies to each individual claim made during the policy period, but no limit to number of claims