MIGI 8.5 PII requirements: worked examples

Example 1: insurance intermediary that does not hold client money

An insurance intermediary that does not hold client money, with annual income of £50,000 receives a quote for a PII policy that has a general excess of £5,000.

Minimum level of cover: €1,000,000 for a single claim AND €1,500,000 for aggregate claims.

The policy contains the following limits: £725,000 for a single claim AND £1,250,000 for aggregate claims.

Assuming an exchange rate of 1.4 when the terms of the policy are agreed, these levels of cover would be sufficient as they convert to €1,015,000 for a single claim and €1,750,000 for aggregate claims.

Excess levels: The maximum permitted excess level is £2,500 (as this is higher than 1.5% of annual income), so the excess on the policy is too high and the policy would not meet our requirements. Using the table in PRU 9.2.21 R shows that the firm would need to hold additional capital of £5,000. The extract from the table below shows how this is calculated.

Example 2: two insurance intermediaries that both hold client money

Two unconnected insurance intermediaries, who both hold client money, wish to be covered by the same policy. Firm A has annual income of £1,250,000 and Firm B has annual income of £14,750,000. The policy quote has a general excess of £50,000.

Minimum level of cover required: €1,000,000 for a single claim AND £1,600,000 for aggregate claims. (The policy must cover single claims for €1,000,000 and it must cover aggregate claims for 10% of combined annual income (i.e. £1.6m), as this is greater than €1,500,000 (approx £1,100,000).)

Excess levels: As the £50,000 excess level is less than 3% of the annual income of firm B, the excess is acceptable for firm B. For firm A, the maximum permitted excess level is £37,500 (3% of £1,250,000). So the excess on the policy is too high for firm A and the policy would not meet our requirements. Using the table in PRU 9.2.22 R shows that firm A would need to additional capital of £16,000. The extract from the table below shows how this is calculated.

Example 3: a mortgage intermediary that does not hold client money

A mortgage intermediary, that does not handle client money, has annual income of £3,000,000, receives a quote for a PII policy that has a general excess of £2,500.

Minimum level of cover required: £300,000 for a single claim OR £500,000 for aggregate claims (The policy must either cover single claims for 10% of annual income (i.e. £300,000) as this is higher than £100,000 or it must cover aggregate claims for £500,000, as this is higher than 10% of annual income.)

Excess levels: As the £2,500 excess level is less than the maximum permitted (1.5% of £3 million), the firm would not need to hold additional capital.