AIFA comments on the FSA's decision on PII

The FSA has announced a modification to its rules, which introduces a number of changes to the prescribed wording of PII policies. The modification does not alter the requirement to hold PII or change the formula for determining excess levels. Firms with no cover will continue to be at risk of enforcement action. But the FSA has removed or amended some of the wording which has caused some underwriters to pull out of the IFA market, through concern over its legal implications.

“PII brokers and underwriters have indicated that amendments to certain FSA-prescribed clauses would be likely to increase capacity in the market,” said AIFA. “We hope that insurers who have withdrawn from the market or restricted their levels of business will now reconsider their position.”

The modification will be available from 1 November 2002 until 30 June 2003. IFAs must give their consent by completing the new FSA self-certification form. This form and further guidance is available on the FSA website at or by telephoning the IFD Contact Centre on 0845 606 9966.

As AIFA said: “What this means in practice is that IFAs will need to check with their broker/underwriter that the policy wording and terms offered meet the revised FSA requirements and if so, complete and return the new form.

“Where firms are still offered non-compliant terms, for example, due to inadequate total cover, high excess levels or exclusions, the FSA is also adopting a different approach. The FSA is including in its new standard letter, an option which invites the firm to present a reasoned case evidencing that they have adequate resources to meet FSA Threshold Condition 4 (maintaining adequate resources).

"The case needs to be supported by prescribed documentary evidence, including details of the PI terms offered (highlighting the element of non-compliance), complaints history and financial information. FSA will evaluate each case to ascertain whether the firm has sufficient resources to operate with non-compliant cover, assessing potential and realistic liabilities against capital.

"We believe this potential for a trade-off between PI and capital is a significant move forward.”

If firms are unable to obtain any cover, they will be asked to voluntarily stop conducting regulated business permanently or to stop temporarily until compliant cover is obtained. Firms will be given 3 months to obtain cover.