Category Archive: Commercial

How much Insurance should I buy?

For the professional classes of insurance (PI, D&O etc) we frequently get asked this question.  There is no perfect answer but for our clients we have a process that considers over 16 factors which influence the source and/or quantum of claim.  We have listed 5 below:

1. Legal requirement. As a first step, what is the minimum limit required by law as an AFSL holder.

2. Number and complexity of mandates. The more clients/mandates the more exposure. The larger FUM then theoretically the more money can be ‘lost’, which has an impact on size of claim. The more complex the mandate the more likely there could be a error.

3. Staff: the number of staff (sufficient to manage workload, especially as business grows), quality of staff (more experienced the better), longevity of staff (turnover may be an indicator of issues).

4. Culture.  A business can have all the compliance processes and procedures in place, but if there is a culture of ‘getting the job done’ irrespective of compliance and risk management, then the likelihood of a claim increases.

5. Cost. Ultimately, the value in purchasing additional limit of indemnity needs to be weighed up against the additional premium cost to purchase the limit.

Sitting with your Broker to work your way through some of these factors can assist in the discussion on limit of indemnity.

Creating a bespoke Insurance policy

There are more than a dozen Insurers who can provide PI, D&O and Crime (IMI) insurance for Asset Managers, each with their own unique policy wording.  Whilst the basic intent is the same, there is considerable difference between the best policies and the worst policies.  Like all insurance policies this may only be apparent in the event of a claim – however, if you are unfortunate enough to be involved in a claim, each difference will be magnified.

However, it may or may not come as a surprise, but IMI insurance is a negotiable product, and almost without exception, every wording can be modified / enhanced.    Even the ‘best’ wordings have room for improvement, whether it be narrowing an exclusion, refining a claim condition, or expanding or adding an extension.  On a recent renewal, we achieved over 10 amendments to a leading market form (although we also got knocked back on a handful as well).  Some of these amendments were of minor value, but others were of higher value.

Key tip:

1. Don’t accept complacency. An Insurer doesn’t want to do more work than they have to, and it’s rare they will offer a variation to their standard form if they don’t have to;

2. To get an improvement, you have to know what to ask for in the first place;

3. You have to know how to ask for it – what arguments to make, and whom to make them to;

Most Insurers do a good job of providing cover.  However you can enhance your insurance policy to be something that will be even more effective in responding to your risk.