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RELAX, WE’VE GOT IT COVERED

FIVE-POINT PRIMER

Professional indemnity insurance (PII) might appear to be one more box to tick but it deserves more serious attention. Get it wrong and you could face a claim that could ruin you financially – even years into retirement. The first area where you can manage risk is when buying or renewing your PI policy. RICS has agreed a minimum policy wording with its listed insurers in the UK. However, “you are welcome to arrange more comprehensive cover and that may make more sense depending on the nature of your work”, says James Creasey, RICS’ Regulatory Development Executive. Of course, as your activities become riskier, so insurers will charge a higher premium and the cost of PII is a particular headache for valuers (box, opposite). Creasey says: “In the wake of the subprime mortgage crisis, insurers are wary of valuers. Insurance is available, but premiums are high.” Nicholas Abbott, underwriter, professional, at insurer XL Catlin, adds: “Some RICS member firms are currently paying as much as 25% of gross fee income for their PII, which can have a major bearing on the firm’s profitability.” RICS is working with insurers to try to reduce premiums – for example by introducing Valuer Registration. Creasey says: “Valuer Registration is improving standards, and insurers have given us really positive feedback, but they

Don’t buy more cover than you need But conversely, ensure you are fully covered for riskier activity. Start your renewal process early At least eight weeks ahead of expiry is preferable. Limit your liability Set your own terms and conditions on instructions, and ensure all communication can be understood by a lay person. Keep your insurer informed All new business activity, including new hires, must be reported. Don’t forget run-off cover You are still liable for work carried out even after closure or retirement. 40

RICS.ORG/MODUS

MIND YOUR LANGUAGE Ensure that communication, both written and verbal, is crystal clear. “Breakdown in communication remains a key driver of PI claims,” says Abbott. “Depending on your client, your report may be relied upon by lay people. So avoid overly technical language and, where it is used, explain the meaning of the terms. Also, record in writing all dealings with the client – a court will prefer this to oral evidence.” It is also vital to inform your insurer of any new activities. Dominic Guest, head of PI at Axa Insurance UK, cautions: “If you, for example, recruit someone to offer a new service, your existing policy won’t cover the new business area.” Although RICS’ minimum policy wording includes an innocent non-disclosure clause – which means insurers may not penalise you for unwittingly failing to tell them about

WORDS ROXANE MCMEEKEN

BUSINESS PI insurance is one of the biggest headaches for a surveyor, but it need not be

still want to see what claims are like during a future property downturn before changing their view of valuers.” Peter London, senior account executive at Howden, advises choosing a broker that keeps you up to date with any foreseeable changes in insurance rates throughout the policy year. “This should help you budget for any likely rise in premium.” London adds: “Start the renewal process at least eight weeks ahead of renewal and allow plenty of time to complete the proposal form to ensure that your broker has sufficient time to negotiate with insurers.” Even with a suitable policy in place, being hit with a claim can severely test your business. Abbott says: “In most cases, insurers will cover these costs, but your firm will need to pay the excess. So take all possible steps to mitigate the likelihood of a claim.” When starting a job, Abbott advises nailing down who the end client is and the purpose of the instruction: “These points should be clearly addressed in any instructions received and reports issued. Outline in any dealings with your client those surveys or reports that provide information only and those that provide advice.” Next, try to limit your liability by setting the terms and conditions of instructions instead of allowing the client to impose them. Abbott recommends identifying“any contractual obligations you are agreeing to that may extend your duty beyond the norm”. Where possible, limit your liability to a multiple of your fee and include a thirdparty non-reliance clause, which excludes you from future liability.

RICS Modus, Global edition — June 2016  

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