INSURANCE GUIDE
Professional Indemnity Insurance for Insurance Brokers UK
FCA requirements, cover scope and run-off for UK insurance brokers and intermediaries.
TL;DR
- The FCA requires all authorised insurance intermediaries to hold professional indemnity insurance as a regulatory condition.
- Minimum PI limits for brokers are set by FCA rules and vary based on business volume.
- PI covers claims that broker advice or placement errors caused the client financial loss.
- Run-off cover is required when a brokerage closes - claims can arise years after policies were placed.
FCA PI Requirements for Insurance Brokers
Insurance brokers and intermediaries authorised by the Financial Conduct Authority (FCA) are required to hold professional indemnity insurance as a condition of their FCA authorisation. This requirement is set out in the FCA's Interim Prudential sourcebook for Insurers (IPRU-INS) and the Insurance Distribution Directive as retained in UK law. The minimum PI limits required are calculated based on the broker's annual income from insurance distribution activities. Failure to maintain adequate PI cover risks FCA enforcement action including withdrawal of authorisation.
What Broker PI Covers
Professional indemnity for insurance brokers covers claims that negligent advice or errors in placing insurance cover caused the client financial loss. Common claim types include: failing to arrange a cover that the client requested; placing cover on inappropriate terms that left the client exposed at claim time; errors in policy documentation that led to a declined claim; and failure to advise the client of material policy conditions that subsequently led to a claim being rejected. PI covers both the legal defence of the claim and any damages awarded.
Run-Off Cover for Brokerage Closures
PI for insurance brokers operates on a claims-made basis. When a brokerage closes or a broker retires, run-off cover extends the claims window for claims arising from past placement and advice activities. Given that clients may not discover a placement error until they make a claim on the underlying policy - potentially years after the broker arranged it - run-off cover for a minimum of six years after closure is advisable and may be required by the FCA as part of the wind-down process.
Related Guides
Disclaimer
This guide is for general information only and does not constitute financial or insurance advice. Kaeltripton.com is not regulated by the FCA. Always read policy documents in full before purchasing cover.
Sources
Frequently Asked Questions
Is PI insurance mandatory for all FCA-authorised brokers?
Yes. Holding adequate PI insurance is a condition of FCA authorisation for insurance intermediaries. The FCA monitors compliance with this requirement through the annual regulatory return. Brokers who cannot demonstrate adequate PI cover face potential enforcement action and suspension or withdrawal of their FCA authorisation.
How are minimum PI limits calculated for brokers?
FCA minimum PI limits for brokers are calculated based on annual income from insurance distribution. The minimum limits increase as income increases. The FCA's IPRU-INS sourcebook sets out the specific calculation methodology. Brokers should confirm the current applicable minimum with a compliance adviser as the limits are reviewed periodically.
