Professional indemnity insurance

Part

MIPRU Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries

Chapter

Professional indemnity insurance

Printed on: 14/05/2025

Rulebook at: 06/08/2008

MIPRU 3

Professional indemnity insurance

MIPRU 3.1

Application and purpose

01/01/2007

Application

MIPRU 3.1.1

This chapter applies to a firm with Part IV permission to carry on any of the activities:

(1) insurance mediation activity;
(2) home finance mediation activity; unless any of the following exemptions apply:
(3) in relation to insurance mediation activity, this chapter does not apply to a firm if another authorised person which has net tangible assets of more than £10 million provides a comparable guarantee; for this purpose:

(a) 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;
(b) A 'comparable guarantee' means a written agreement on terms at least equal to those in a contract of professional indemnity insurance (see MIPRU 3.2.4 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) in relation to home finance mediation activity, this chapter does not apply to a firm if:

(a) it has net tangible assets of more than £1 million; or
(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 (3)(a) and (b);

(5) This chapter does not apply to:

(a) an insurer; or
(b) a managing agent; or
(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; or
(d) an exempt CAD firm to which IPRU(INV) 9.2.5R (Initial capital and professional indemnity insurance requirements - exempt CAD firms that are also IMD insurance intermediaries) applies.

(6) in relation to home finance mediation activity , this chapter does not apply to an authorised professional firm:

(a) that is required by another rule to hold professional indemnity insurance (see IPRU(INV) 2.3.1R); and
(b) whose home finance mediation activity, is incidental to its main business.

01/11/2007

MIPRU 3.1.2

The definition of insurance mediation activity is any of several activities 'in relation to a contract of insurance' which includes a contract of reinsurance. This chapter, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.

01/01/2007

Purpose

MIPRU 3.1.3

The purposes of this chapter are to:

(1) implement article 4.3 of the Insurance Mediation Directive in so far as it requires insurance intermediaries to hold professional indemnity insurance, or some other comparable guarantee, against any liability that might arise from professional negligence; and
(2) meet the regulatory objectives of consumer protection and maintaining market confidence by ensuring that firms have adequate resources to protect themselves, and their customers, against losses arising from breaches in its duties under the regulatory system or civil law.

01/01/2007

MIPRU 3.1.4

Any breach in the duty of a firm or of its agents under the regulatory system or civil law can give rise to claims being made against the firm. Professional indemnity insurance has an important role to play in helping to finance such claims. In so doing, this chapter amplifies threshold condition 4 (Adequate resources). This threshold condition provides that a firm must have, on a continuing basis, resources that are, in the opinion of the FSA, adequate in relation to the regulated activities that the firm carries on.

01/01/2007

MIPRU 3.1.5

Under Principles 3 and 4 a firm is required to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems and to maintain adequate financial resources. Under Principle 9 a firm is obliged to take reasonable care to ensure the suitability of its advice on investments and discretionary decisions for any customer who is entitled to rely upon its judgement.

01/01/2007

MIPRU 3.1.6

Although financial resources and appropriate systems and controls can generally mitigate operational risk, professional indemnity insurance has a role in mitigating the risks a firm faces in its day to day operations, including those arising from not meeting the legally required standard of care when advising on investments. The purpose of this chapter is to ensure that a firm has in place the type, and level, of professional indemnity insurance necessary to mitigate these risks.

01/01/2007

MIPRU 3.2

Professional indemnity insurance requirements

01/01/2007

MIPRU 3.2.1

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

(1) an insurance undertaking authorised to transact professional indemnity insurance in the EEA; or
(2) a person of equivalent status in:

(i) a Zone A country; or
(ii) the Channel Islands, Gibraltar, Bermuda or the Isle of Man.

[Note: Article 4(3) of the Insurance Mediation Directive]

01/11/2007

MIPRU 3.2.2

The minimum limits of indemnity for a firm whose Part IV permission covers both insurance mediation activity and home finance mediation activity is the higher of the limits of indemnity for these activities. If the firm opts for a single comparable guarantee to finance the claims which might arise as a result of both activities, the requirements for insurance mediation activity apply.

06/04/2007

MIPRU 3.2.3

A non-EEA firm (such as a captive insurance company outside the EEA) will be able to provide professional indemnity insurance only if it is authorised to do so in one of the specified countries or territories.. The purpose of this provision is to balance the level of protection required for the policyholder against a reasonable level of flexibility for the firm.

01/01/2007

Terms to be incorporated in the insurance

MIPRU 3.2.4

The contract of professional indemnity insurance must incorporate terms which make provision for:

(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) the minimum limits of indemnity per year set out in this section;
(3) an excess as set out in this section;
(4) appropriate cover in respect of legal defence costs;
(5) continuous cover in respect of claims arising from work carried out from the date on which the firm was given Part IV permission for the insurance mediation activity or home finance mediation activity concerned; and
(6) cover in respect of Ombudsman awards made against the firm.

06/04/2007

MIPRU 3.2.5

A firm is responsible for the conduct of all of its employees. The firm's employees include, but are not limited to, its partners, directors, individuals that are self-employed or operating under a contract hire agreement and any other individual that is employed in connection with its business.

01/01/2007

MIPRU 3.2.6

A firm is responsible for the conduct of all of its appointed representatives.

01/01/2007

Minimum limits of indemnity: insurance intermediary

MIPRU 3.2.7

If the firm is an insurance intermediary, then the minimum limits of indemnity are:

(1) for a single claim, €1 million; and
(2) in aggregate, €1.5 million or, if higher, 10% of annual income up to £30 million.

[Note: Article 4(3) of the Insurance Mediation Directive]

01/11/2007

MIPRU 3.2.8

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.

01/01/2007

Minimum limits of indemnity: home finance intermediary

MIPRU 3.2.9

If the firm is a home finance intermediary, then the minimum limit of indemnity is the higher of 10% of annual income up to £1 million, and:

(1) for a single claim, £100,000; or
(2) in aggregate, £500,000.

06/04/2007

Excess

MIPRU 3.2.10

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

01/01/2007

MIPRU 3.2.11

For a firm which does not hold client money or other client assets, the excess must not be more than the higher of:

(1) £2,500; and
(2) 1.5% of annual income.

01/01/2007

MIPRU 3.2.12

For a firm which holds client money or other client assets, the excess must not be more than the higher of:

(1) £5,000; and
(2) 3% of annual income.

01/01/2007

Policies covering more than one firm

MIPRU 3.2.13

If a policy provides cover to more than one firm, then:

(1) the limits of indemnity must be calculated on the combined annual income of all the firms named in the policy; and
(2) each firm named in the policy must have the benefit of the relevant minimum limits of indemnity.

01/01/2007

Additional capital

MIPRU 3.2.14

If a firm seeks to have an excess which is higher than the relevant limit, it must hold additional capital as calculated in accordance with the appropriate table below:
Table: Calculation of additional capital for firm not holding client money or other client assets (£000's)

Income

Excess obtained up to and including:

More than

Up to

2.5

100

150

200+

100

200

300

400

500

600

100

600

700

104

700

800

107

800

900

109

900

1,000

111

1,000

1,500

118

1,500

2,000

121

2,000

2,500

126

2,500

3,000

101

130

3,000

3,500

101

132

3,500

4,000

101

133

4,000

4,500

101

134

4,500

5,000

134

5,000

6,000

133

6,000

7,000

131

7,000

8,000

126

8,000

9,000

120

9,000

10,000

113

10,000

100,000

n/a

Table: Calculation of additional capital for firm holding client money or other client assets (£000's)

Income

Excess obtained up to and including:

More than

Up to

100

150

200+

100

200

300

400

500

600

700

800

900

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

6,000

7,000

8,000

9,000

10,000

100,000

n/a

01/01/2007

MIPRU 3.2.15

The rule on the items which are eligible to contribute to the capital resources of a firm applies (see MIPRU 4.4.2 R.

01/01/2007