The IIB claims the FSA's PI rules are in breach of European law

The Institute of Insurance Brokers (IIB) has claimed that the FSA's professional indemnity (PI) requirements for brokers are in breach of European law.

The issue relates to Annexe B of the FSA's Integrated Prudential Sourcebook, which states: "Requirements to hold

PI insurance do not apply in respect of acts or omissions...occurring before 14/1/05."

In a letter to the FSA, IIB director general Andrew Paddick claims that the rule is in breach of the European Insurance Mediation Directive, on which the FSA's rules are based, as it allows PI policies to be issued with 'claims occurring' exclusions.

PI policies are typically issued on a 'claims made' basis, which means that the date the claim is made is used to determine whether it falls within the terms of the policy.

The date on which the alleged negligent act or omission occurred is irrelevant.

But Paddick said the FSA's rule will allow brokers to buy PI cover that only operates against negligent acts or omissions occurring after 14 January 2005, leaving a gap in cover.

Paddick said that while brokers could buy these policies and be FSA compliant, the policies would provide incomplete cover.

He added that brokers buying cover that excluded claims occurring before 14 January 2005 risked bankruptcy or liquidation because they would not be covered for incidents which occurred prior to this date but were claimed for after.

"The FSA has misunderstood what PI insurance is about. The rule did not appear in the initial consultation. The FSA must change its wording," Paddick said.

An FSA spokesman said that the IIB's letter had been received and it would reply "in due course".