Changes to Professional Indemnity Insurance requirements

Further to the notice in our most recent Regulatory Bulletin regarding proposed changes to the Institute’s Professional Indemnity Insurance (PII) requirements, these changes have now been approved by the Professional Standards Board and revised Public Practice Regulations will come into effect on 1 September 2024.  The revised Public Practice Regulations will be available on the Professional Standards website from 1 September 2024.

Main changes

The main changes to the PII requirements are as follows:

• The minimum limit of indemnity will increase from €2.14m (£1.5m) to €2.34m (£2m).
• For firms with a gross fee income which is below €936,000 (£800,000), the minimum limit will be two and a half times the firm’s gross fee income, subject to a minimum of €290,000 (£250,000) (this is an increase from €142,000 or £100,000).
• Larger firms with gross fee income over €58.5m (£50m) will not be required to put in place ‘qualifying insurance’ but must have in place appropriate arrangements which will be monitored. (Currently this approach is available to firms with 50+ principals.)
• For firms that will be required to put qualifying insurance in place, the maximum aggregate excess should not exceed the higher of €3,500 (£3,000) or 3% of a firm’s gross fee income.
• Firms insuring in a group arrangement can be treated as single entity for the purposes of the regulations providing that certain criteria are met. 
• Firms in the structure can:

(a) demonstrate common ownership, control or management; and

(b) can demonstrate that they are aimed at co-operation, and

(c) meet at least one or more of the following criteria:

·        the firms within the structure are clearly aimed at profit or cost sharing;

·        the firms within the structure share common quality control policies and procedures;

·        the firms within the structure share a common business strategy;

·        the firms within the structure share the use of a common brand-name;

·        the firms within the structure share a significant part of professional resources.

• Firms continue to be required to have run off cover in place for the first two years after cessation.  Firms should then take “all reasonable steps” to put run off cover in place for a further four years.

The existing additional PII requirements for firms licensed under the Designated Professional Body Handbook or authorised by the UK Financial Conduct Authority to conduct insurance distribution activities (extant Public Practice Regulation 7.18) and firms authorised under the Investment Business Regulations (excluding firms that perform referral only business) (extant Public Practice Regulation 7.18A) continue to apply and are unchanged at this time.  Firms within the scope of 7.18A can however expect increases to the prescribed limits for policies renewing on or after 1 January 2025.  Firms will receive further information on these changes in due course.

Timeline

There will be a transitional period and the new requirements relating to minimum limits and excess will only apply to new policies once a firm renews its PII after 1 September 2024.  These new requirements will therefore apply to all firms from 1 September 2025. 

Preparing for the changes