PRU 9.2 Professional indemnity insurance requirements for insurance and mortgage mediation activities

1. (1)

   This section applies to a firm with Part IV permission to carry on any of the activities in (2) unless (3), (4), (5) or (6) applies.

2. (2)

   The activities are:

   1. (a)

      insurance mediation activity;

   2. (b)

      mortgage mediation activity.

3. (3)
   1. (a)

      In relation to insurance mediation activity, this section does not apply to a firm if another authorised person which has net tangible assets of more than ?10 million provides a comparable guarantee.

   2. (b)

      If the firm is a member of a group in which there is an authorised person with net tangible assets of more than ?10 million, the comparable guarantee must be from that person.

   3. (c)

      A 'comparable guarantee' means a written agreement on terms at least equal to those in PRU 9.2.10 R to finance the claims that might arise as a result of a breach by the firm of its duties under the regulatory system or civil law.

4. (4)

   In relation to mortgage mediation activity, this section does not apply to a firm if:

   1. (a)

      it has net tangible assets of more than ?1 million; or

   2. (b)

      the comparable guarantee provisions of (3) apply (as if the firm was carrying on insurance mediation activity) but substituting ?1 million for ?10 million in (a) and (b).

5. (5)

   In relation to all the activities in (2), this section does not apply to:

   1. (a)

      an insurer; or

   2. (b)

      a managing agent; or

   3. (c)

      a firm to which IPRU(INV) 13.1.4(1) (Financial resource requirements for personal investment firms: requirement to hold professional indemnity insurance) applies.

6. (6)

   In relation to mortgage mediation activity, this section does not apply to an authorised professional firm:

   1. (a)

      which is subject to IPRU(INV) 2.3.1 (Professional indemnity insurance requirements for authorised professional firms); and

   2. (b)

      whose mortgage mediation activity is incidental to its main business.

A firm must take out and maintain professional indemnity insurance that is at least equal to the requirements of PRU 9.2.10 R from:

1. (1)

   an insurance undertaking authorised to transact professional indemnity insurance in the EEA; or

2. (2)

   a person of equivalent status in:

   1. (i)

      a Zone A country; or

   2. (ii)

      the Channel Islands, Gibraltar, Bermuda or the Isle of Man.

In relation to the activities referred to in PRU 9.2.1 R (2), the contract of professional indemnity insurance must incorporate terms which make provision for:

1. (1)

   cover in respect of claims for which a firm may be liable as a result of the conduct of itself, its employees and its appointed representatives (acting within the scope of their appointment);

2. (2)

   the minimum limits of indemnity as set out in PRU 9.2.13 R (in relation to insurance mediation activity) and PRU 9.2.15 R (in relation to mortgage mediation activity);

3. (3)

   an excess as set out in PRU 9.2.17 R to PRU 9.2.22 R;

4. (4)

   appropriate cover in respect of legal defence costs;

5. (5)

   continuous cover in respect of claims arising from work carried out from the date on which the firm was given Part IV permission in relation to any of the activities referred to in (2); and

6. (6)

   cover in respect of Ombudsman awards made against the firm.

In relation to insurance mediation activity,the minimum limits of indemnity referred to in PRU 9.2.10 R (2) are:

1. (1)

   for a single claim, ?1 million; and

2. (2)

   in aggregate, ?1.5 million or, if higher, 10% of annual income (see PRU 9.3.42 R) up to ?30 million.

If a policy is denominated in any currency other than euros, a firm must take reasonable steps to ensure that the limits of indemnity are, when the policy is effected and at renewal, at least equivalent to those required in PRU 9.2.13 R.

In relation to mortgage mediation activity, the minimum limit of indemnity referred to in PRU 9.2.10 R (2) is the higher of 10% of annual income (see PRU 9.3.42 R) up to ?1 million, and:

1. (1)

   for a single claim, ?100,000; or

2. (2)

   in aggregate, ?500,000.

In this section, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).

For a firm which does not hold client money or other client assets, the excess referred to in PRU 9.2.10 R (3) is not more than the higher of:

1. (1)

   ?2,500; and

2. (2)

   1.5% of annual income (see PRU 9.3.42 R).

For a firm which holds client money or other client assets, the excess referred to in PRU 9.2.10 R (3) is not more than the higher of:

1. (1)

   ?5,000; and

2. (2)

   3% of annual income (see PRU 9.3.42 R).

If a policy provides cover to more than one firm, then in relation to PRU 9.2.13 R, PRU 9.2.14 R and PRU 9.2.15 R:

1. (1)

   the limits of indemnity must be calculated on the combined annual income (see PRU 9.3.42 R) of all the firms named in the policy; and

2. (2)

   each firm named in the policy must have the benefit of the minimum limits of indemnity as required in PRU 9.2.13 R or PRU 9.2.15 R.

If a firm seeks to have an excess which is higher than the limits in PRU 9.2.17 R (for a firm not holding client money or other client assets) or PRU 9.2.18 R (for a firm holding client money or other client assets), it must hold additional capital as calculated in PRU 9.2.21 R or PRU 9.2.22 R (as appropriate).