Proposed changes for professional indemnity insurance (PII) run-off in the UK

6 The options in the consultation

Option 1 - introduce terms to the minimum wording policy that the last insurer must provide at least six years' run-off cover subject to the payment of annual premiums.

  • A firm would be guaranteed to be offered a run-off policy from their last insurer.
  • It would require them to pay annual premiums over the six years that would likely reduce over time depending on claims made.
  • This would formalise current practice in the market and increase run-off availability to firms.

Option 2 - extend the Assigned Risks Pool (ARP) to provide risk cover.

  • The ARP is a way for risk to be shared across all RICS-approved insurers. This reduces risk for an insurer to indemnify a high-risk firm that they would be unwilling to insure otherwise.
  • Currently the ARP is used to help firms improve their risk management and find PII when they cannot procure it on the open market.
  • This option would allow firms to seek PII run-off from the ARP as well as from the open market.

Option 3 - mandate the incumbent insurer to provide six years' run-off under the minimum wording policy.

  • The insurer would have to indemnify the firm for run-off whether the firm paid a premium or not.
  • To cover this cost, the insurer would likely charge a higher premium during the trading life of the firm to pay for the run-off period.

Option 4 - require the incumbent insurer to provide six years' run-off under the minimum wording policy for consumer claims only.

  • Consumer claims and commercial claims differ in size, type and related risk.
  • Consumer claims tend to be smaller and may be easier to insure.
  • This would prioritise consumer protection over businesses, and many will be better educated about the risks involved.

Option 5 - create a special purpose fund that covers all run-off for RICS firms.

  • This is the model used by the Law Society of Ireland.
  • Insurers would pay into it and recoup this cost by raising premiums for firms not in run-off.
  • Any RICS regulated firm could enter it.