Navigating Professional Indemnity Insurance

Professional Indemnity (PI) insurance remains a critical consideration for wealth managers, especially as it ranks among their highest operational costs. While the market is currently in a soft cycle, securing favourable terms still requires proactive engagement with brokers and insurers. This article outlines key trends, challenges, and practical steps firms can take to strengthen their PI position.

1. 01

   Consumer Duty: A subtle but strategic shift

   Although the direct impact of Consumer Duty on PI claims has been limited so far, it has prompted firms to reassess:

   • Fee structures
   • Service delivery
   • Value propositions

   Fair value assessments are now standard, and firms must be prepared to justify their charges and demonstrate tangible client outcomes. The Financial Ombudsman Service is increasingly focused on outcome-based judgments, making complaint handling more complex.

2. 02

   Claims trends and complaint dynamics

   The nature and speed of complaint resolution vary:

   • Simple fee-related complaints are processed quickly.
   • Complex investment advice cases, such as defined benefit (DB) transfers, remain backlogged.
   • Loss realisation depends on the investment cycle and client circumstances.

   Firms should be aware that poor outcomes, regardless of intent, can trigger claims, especially under outcome-focused regulation.

3. 03

   Ongoing advice and TOBA clarity

   There’s a noticeable rise in claims related to failure to provide ongoing advice. Firms are advised to:

   • Review and refine their Terms of Business Agreements (TOBAs).
   • Avoid overly broad service descriptions like “holistic financial planning” unless they can be substantiated.
   • Clearly define deliverables and fee structures.

4. 04

   Differentiating Your Firm at Renewal

   To stand out and reduce risk profiles, firms should provide more than just a proposal form. Key areas to address include:

   • Client segmentation and tailored investment solutions.
   • Frequency of compliance checks on high-risk investments.
   • Nature of client relationships (e.g., generational wealth vs. transactional).
   • Use of external compliance support, especially for smaller firms.

   Long-term client relationships tend to yield fewer complaints, making them a positive indicator during underwriting.

5. 05

   Preparing for a change in market conditions

   Whilst current market conditions remain soft, and the stock market is buoyant, there is uncertainty about how long this will continue. Historically, falls in financial markets have resulted in increased claims activity and a corresponding rise in premiums.

   Planning ahead means:

   • Budgeting for rate increases back to the levels of 3–4 years ago
   • Monitoring regulatory changes (e.g., inheritance tax on pensions from 2027)
   • Staying ahead of emerging risks and product developments

   Underwriters are increasingly focused on future risks rather than legacy issues like DB transfers or unregulated investments.

6. 06

   Ambulance chasers and regulatory pressure

   Fee-related complaints continue to attract attention from claims management firms. However, recent legal developments may curb vexatious claims. While these firms contribute to claim frequency, they are less of a concern for high-value, complex cases.

Key takeaways for Wealth Managers

• Engage early with your broker to shape your renewal strategy.
• Provide detailed information beyond the proposal form to demonstrate your firm’s risk management.
• Maintain regular dialogue with your broker throughout the policy cycle.

By taking these steps, wealth managers can better navigate the evolving PI landscape and protect their businesses against future challenges.

Author

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Duncan Philpott

Executive Director, Professional Indemnity

email Email phone +44 20 3193 9409

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