cfi: nacfB Full protection needed
In the current market brokers need to protect both themselves and their clients which is why Professional Indemnity insurance is more essential than ever
by Adam Tyler, chief executive, NACFB
For many within the financial services industry, PI is a legal requirement, although for commercial work, there is no legal requirement to take out PI cover. Despite this fact, the NACFB has always insisted that its members have PI in place and as part of the benefits of membership, it offers a competitive and comprehensive PI scheme for its members. Despite the NACFB’s insistence of PI for
its members, some brokers still appear to underestimate its importance, often stating that they have worked in the industry for years without a single complaint. Others even go as far as to say that PI is just another unnecessary expense and their experience in the industry means that they will not make mistakes. As experienced as a broker may be, the requirement for PI is far from superfluous. A driver may never have dented his vehicle but it does not necessarily mean that a future accident is beyond the realms of possibility. Although PI is an expense to the broker, it can only take one claim to potentially destroy their livelihoods. Prudence obviously makes sense.
Dual protection Professional Indemnity insurance protects both the broker and the client in the event of a client suing for compensation from services provided by the broker but its protection can also stretch as far as the lender. Coverage can also take in to account the size of the brokerage, with different levels of excess being available.
50 mortgage introducer MARCH 2011
Another point worth noting is that not all policies will cover the broker for all areas of business activity. Unfortunately, some brokers have policies with their network and assume that it covers them for all work undertaken which means that in certain instances, they can become unstuck. For example, a residential broker may have PI via their network but this does not necessarily mean that the network’s policy will cover non FSA regulated work in the commercial market. It pays to scrutinise exactly what coverage policies cover. The current market and its troubles
have led to a more litigious environment – and some NACFB brokers have stated that lenders have sought to recoup their losses by pursuing brokers. Fraud is also a factor within the market and this is evident from a glance at the industry press – barely a week passes without stories of FSA crackdowns on dishonest brokers. Obviously your policy will not cover you if you are dishonest but it will help if you find that your staff have been less than straight in their dealings. If something does come to light which could result in a claim – a “notifiable event” – it is very important that you notify your insurers immediately. Any delay could invalidate your cover.
a litigious worlD Risk is a critical point for insurers. Market pressure has effectively increased risk with more disgruntled clients looking for some kind of redress for money that they have lost (at least in part) to the current financial crisis. This ever more litigious environment has led to insurers increasing their premiums for brokers. Therefore, it is important that your dealings with clients are well documented. The contract that you have with clients should clearly state what you intend to do for your client and
the fee arrangement/structure (whether it is a fee from your client or commission from the lender) and when the fee is due. Ensure these points are agreed upon before the work is undertaken. This is where a Terms of Business Agreement becomes essential - the NACFB can help with this process as we have a model complaints procedure and a minimum terms of business agreement which is very robust.
Know your stuff The final word of advice comes from the FSA which produces a fact sheet (“Buying Professional Indemnity Insurance” which is available on its website) on professional indemnity insurance, its importance and how a broker should go about arranging cover. The FSA points out that PI is a specialist area, and much as your clients rely on you for your specialist commercial finance knowledge and guidance, you need to seek out a specialist PI insurance broker to arrange your cover for you. The FSA recommends that in order to get good cover you will need to: • Know who you are dealing with and who they represent.
• Check if your broker deals directly with the PII market, or through another broker and how much it will cost you.
• Find out what service the broker is offering, for example will they provide advice?
• Find out which insurers can be accessed.
• Check if they are specialists/ knowledgeable about your sector.
Even the most experienced broker should have PI in place to protect their business. The pressure of the current market means that even the best deals can go wrong and some clients will chase those they perceive – rightly or wrongly – to have been at fault.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56