The FCA has found a “high level of inaccuracies” in PII policies for insurance advisers, especially on the scope of cover for FOS awards.

A thematic review of general insurance intermediaries’ professional indemnity insurance found that in 48 policies, cover for FOS awards was not explicitly provided.

In some cases policies “failed to provide the cover for all of a firm’s activities” that FCA rules require “whether by mistake or intentionally”.

The FCA review stated: “We considered how and whether the policies in our sample provided cover for FOS awards and found that, in the majority of policies, there was explicit cover for FOS awards.

“However, some policies that provided explicit cover only did so subject to a financial sub-limit.

“In 15 policies, the sub-limit was £100k for any one claim, the limit presumably not having been increased in line with the increase in the maximum FOS award, and therefore being insufficient to provide full cover for FOS awards.”

The FOS can make binding awards up to £150k. The amount FOS could award was increased from £100k to £150k for complaints received after 1 January 2012.

The FCA paper stated: “Sixteen policies had an annual aggregate limit of cover for FOS awards of, most typically, £150k which could be exhausted quickly if FOS made a number of awards against the firm, and did not appear to provide the minimum extent of cover required by MIPRU.

“In 48 policies, cover for FOS awards was not explicitly provided. We saw policies containing various different formulation of what was covered under the insuring clause, where it was not clear that the policies provided cover for FOS awards.

“Policies with no explicit provision for FOS awards risk not meeting the requirements of MIPRU.”

The review also found policies contained exclusion clauses which gave the regulator “significant concerns”.

The four types of exclusion clause were:
• Suitability of insurer (11 policies)
• Unrated insurers (two policies)
• Non-admitted insurers (13 policies)
• Insurer insolvency (140 policies)

The probe aimed to evaluate the individual policies purchased by a sample of firms to assess whether they complied with the requirements in the FCA Handbook.