Feedback and Final Consultation on Professional Indemnity Insurance for Insurance Intermediaries and Insurance Managers (June 2022)

Summary

This is the Guernsey Financial Services Commission's feedback statement and final consultation, issued June 2022, following its December 2021 consultation paper on professional indemnity insurance (PII) requirements for insurance intermediaries and insurance managers. It summarises industry responses, confirms which proposals the Commission is taking forward, and attaches a final draft of amended PII rules for a last 'fatal flaw' review before formal adoption.

• Aggregate cover cap: A new maximum cap of GBP 10,000,000 will apply to the annual aggregate level of PII cover required (previously uncapped).
• Each and every loss limit: The minimum cover for each and every loss increases from GBP 250,000 to GBP 1,000,000; firms need not adopt an each-and-every-loss limit at all, but if they do it must not be less than GBP 1,000,000.
• Cover proportionate to business: Firms must maintain PII cover consistent with the size and nature of their business and must document the process used to determine the appropriate level of cover.
• Minimum policy terms and conditions: PII policies must include cover for: negligence/errors/omissions by the licensee or employees; dishonest or fraudulent acts of employees (which may be covered by a separate policy); liabilities of employees acting in their own name in the course of their duties; liabilities in any jurisdiction where the firm carries on business; ombudsman awards; and legal defence costs.
• Retroactive date: Cover should have a retroactive date from when the firm was first licensed, though the Commission may waive or amend this where disproportionate and clients are not put at materially increased risk.
• Fee income basis: The 'three times fee income' test is proposed to be reworded as three times income from regulated activities, with firms expected to consider extra cover if unregulated activities are significant.
• Proposal dropped: The proposal that legal defence costs must not erode the aggregate cover limit is not being taken forward at this time due to market availability concerns.

The Commission has issued a final draft of the amended rules alongside this feedback statement and is running an eight-week final consultation limited to identifying 'fatal flaws,' after which the amended rules will be formally adopted. This document itself is feedback plus a final-stage consultation, not yet the adopted rule text.

Key obligations

• Under the proposed final rules, insurance intermediaries and insurance managers will need to maintain annual aggregate PII cover subject to a maximum cap of GBP 10,000,000
• Firms will need to ensure any each-and-every-loss limit within their PII policy is not less than GBP 1,000,000
• Firms will be required to maintain PII cover consistent with the size and nature of their business and to document the process by which that level of cover is determined
• Firms will be required to ensure PII policies contain the specified minimum terms and conditions (cover for negligence/errors/omissions, employee dishonesty/fraud, employees acting in own name, cross-jurisdictional liabilities, ombudsman awards, and legal defence costs)
• Firms should arrange PII cover with a retroactive date from the date they were first licensed, unless the Commission waives or amends this requirement
• Interested parties must submit any 'fatal flaw' comments on the final draft rules to the Commission by 5 August 2022

Applies to

insurance intermediaries, insurance managers

Deadlines

• 5 August 2022: Deadline for submitting fatal flaw comments on the final draft amended PII rules, after which the rules will be formally adopted
• 14 February 2022: Closing date of the original nine-week consultation period on the December 2021 consultation paper (for context; already passed)