Cost v Cover v Reality

So, you have Professional Indemnity insurance and you receive your renewal quote from your broker with a large price reduction via an alternative insurer. I’m sure your first thought is something along the lines of “thank god for that, I pay too much as it is”. Very few people stop and consider why or how this was achieved.

Insurance, like most things in life, is a case of you get what you pay for. A client of mine found this out the other day when they asked me to review their new policy wording which had been given to them by their now previous broker at their renewal a few months earlier. The renewal was offered with this new policy wording, new insurer and a circa 35% drop in premium.

When we reviewed the policy wording we found numerous deficiencies within the ‘new’ offering. The insuring clause was restrictive, the business description generic and not suitable for the activities, endorsements which removed cover for prior works and a claims process which was a detriment to the client. The upshot was that they had been moved from what I would have considered a good policy to one which was substandard and left the client exposed both in the now and for their prior activities.

How had this happened though? Well, simply the client had just taken the broker at their word. They had not had a breakdown of the differences within the pricing and had assumed that they were getting a like for like offering for less money.

So how do you guard against this? Firstly, you shouldn’t have to, brokers should provide you an overview of the differences between policies when they recommend a change. If they don’t then it should ring alarm bells that you need to ask more questions. As such I would suggest the following three measures:

  1. Ensure that there is a detailed breakdown between the wordings within the broker quote to you. If they go through it over the phone then ask for it in writing;

  2. Run a basic check comparison yourself on the wordings yourself. You should focus on the following areas:

  • Insuring Clause – this tells you what ‘triggers’ the policy and what you are insured for. We previously have written an article on this ‘what are you insured for’ does it compare with what you had previously?

  • Check the exclusions within the policy, are there additional ones which weren’t there previously and do they impinge on your activities. Remember the current years PI policy needs to take into consideration all previous business activities;

  • Check the endorsements on the schedule of insurance. Endorsements are the extras to the policy wording which the insurer includes to either add or remove cover from the policy wording. Do any of these impinge on your activities;

  • Finally, check the definition of professional services within the policy wording and the schedule. How does this relate to your business activities? You want to avoid anything which includes the phrase ‘as more fully described within the proposal form dated XX/XX/XXXX as this specifically ties the cover into what you have written in the proposal form

  1. If you are unsure, then get a second opinion. Colne Risk Advisory are happy to provide an independent policy review service where we will compare both the policy wordings which you have and give you a report as to how they compare to one another and your business activities.

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