1 Introduction

1.1 Background

1.1.1 When an RICS regulated firm or individual ceases to trade, it is required by RICS to have 'adequate and appropriate' professional indemnity insurance (PII) run-off cover.

1.1.2 Run-off cover is recognised as an important tool for protecting consumers, as it provides certainty that any loss incurred over that period will be covered by insurance.

1.1.3 RICS recommends a period of six years for PII run-off but instructs regulated firms to seek the guidance of their broker on an appropriate period for the specific range of services offered by the firm.

1.1.4 Run-off is usually provided by the last incumbent PII insurer of a firm, though this is not a mandatory requirement.1 Run-off cover has not been available through the Assigned Risks Pool (ARP), except at the discretion of prescribed insurers where a firm closes while in the ARP.

1.1.5 We are now determining what changes, if any, should be made to the PII run-off requirements of regulated firms that are de-registering from RICS Regulation and ceasing to trade.

1.2 Development to date

1.2.1 A call for information about the market and any risks was launched in December 2016.

1.2.2 This information formed the basis for an open consultation, which reviewed five different proposed options for addressing the issues identified in run-off availability and consumer protection. In total there were 24 responses from the surveying profession, insurers and a financial institution. The full report can be found in the Appendix at the end of this consultation paper.

1.2.3 The main emerging themes across the responses were:

  • there is an issue of availability of run-off in the market;
  • the profession would welcome clearer run-off requirements from RICS beyond 'adequate and appropriate';
  • the profession would also welcome a run-off option that gave them assurance of cover, independent of paying annual premiums;
  • any requirement that is too onerous on insurers will cause some of them to exit the market, driving prices up and availability down; and,
  • there is no apparent direct evidence of consumer detriment resulting from firms without sufficient run-off at present.

1.2.4 After considering the responses, the RICS UK and Ireland Regulatory Sub-Board decided to open the ARP to offer a standard PII run-off package. In addition the Sub-Board also considered the proposals set out in section 4, and decided to consult on these. The purpose of extending the ARP and consulting on these proposals is to minimise the risk of consumers, particularly vulnerable consumers, being left unprotected.

1.2.5 We met with a number of insurers to understand and assess the impact of the proposals highlighted in this consultation. These meetings suggested that the insurance market could work with these changes.