Gary Dixon explains PI insurance requirements
Question: Does PS174 require a broker with a commission income of £1m to carry a compulsory excess of £30,000?
Answer: PRU 9.2.17R refers to the PI insurance requirements for general insurance intermediaries. It states that a firm that holds client money is required to have a PI policy that carries an excess of no more than the higher of £5,000 or 3% of annual income. So a broker with £1m turnover and holding client money must have an excess of no more than £30,000. It is not a compulsory excess (indeed I am sure that the FSA would rather no excesses applied), but a maximum.
Where the excess imposed by a policy is higher than the stated maximum, an additional amount of capital must be set aside within financial resources, as determined by table 9.2.19R (which is a function of broker turnover and the actual excess imposed). This is comparable to that applied to IFAs who have excesses higher than allowed under FSA rules.