In PS174, the FSA has provided firms with an alternative to professional indemnity (PI) insurance - the comparable guarantee. Matthew Dyer, managing director of the Insurance Training Consortium, explains what it is.
One of the most demanding requirements of the Insurance Mediation Directive and the FSA's rules is that of (PI) insurance.
For many, these requirements will prompt the start of a long and potentially expensive search for that elusive PI market. Particularly hard hit will be secondary insurance intermediaries - firms for whom selling general insurance is not their primary activity.
But the Insurance Mediation Directive and the FSA have made provision for an alternative to PI cover called a comparable guarantee. According to PS174 a comparable guarantee is "a written agreement on terms at least equal to those in PRU 9.2.10R to finance claims that might arise as a result of a breach by the firm of its duties under the regulatory system or civil law".
To offer a comparable guarantee a firm must have net tangible assets of over £10m.
While the comparable guarantee is a much simpler route for the unproven secondary intermediary, there are currently very few organisations looking at providing such a solution. This may be due to a lack of understanding or more likely the risk attached to the £10m.
At present the option will be the route for cash rich groups to avoid going through the PI pain barrier; the rest will have to wait.