Quite often, people living in a block of flats or along the same street may form a Residents’ Association or Residents’ Management Company. It’s a great idea to promote a sense of community and provide a united voice to deal with issues such as property services and maintenance. Sometimes, legal and financial matters may come under an association’s remit as well and, guess what?…anyone who has taken on a management or administrative role on the committee could end up being personally – yes, personally – liable if something goes wrong.
So the first reason for considering D&O insurance, as a Residents’ Association is simply this – it’s a way to avoid the strife, stress and financial implications for individuals who’ve nobly volunteered to help out on the committee (whether paid or unpaid), if one of the residents decides to sue.
Surely a group of residents will stick together in a crisis? You’d think so, wouldn’t you? Sorry, no, life doesn’t work like that. Here are a few horror stories to make your toes curl:
• Building Insurance blunder
An association secretary chose the building insurance for a block of flats but neglected to read the small print applying to unoccupied flats and a pipe burst in one, damaging the flat below.
The secretary was held personally responsible for failing to obtain adequate cover.
• Filing accounts fiasco
Companies House fined the directors of a Residents’ Management Association because they didn’t file the accounts on time.
D&O cover allowed them the funds to defend themselves.
• Squirrel damage disaster
A squirrel climbed into a building maintenance room via an overhanging tree and chewed up all the wiring. Action against the directors was attempted on the grounds that they had failed to maintain the tree properly!
D&O cover paid the legal costs in the successfully defended case
• Price drop penalty
Members of a Residents’ Association committee were sued because a flat dropped in value when it was to be sold. The resident alleged that the association had failed to manage a disruptive tenant in a neighbouring flat.
Legal costs ran to more than £10,000
• Libellous lapses
In a number of cases, directors have been sued for libel – for example, for writing a letter in response to some allegations against the board, or for claiming a failure to disclose conflicts of interest. The cost of legal advice and representation in these cases can really mount up.
Costs, sometimes as high as £35,000 have been covered by a D&O policy
And the seventh reason to have D&O insurance? You’d be mad not to!
For help and advice on buying the correct Directors and Officers cover call The Expert Insurance Group on 01825 745 410
Standard and Poor downgraded eight European insurers this week, including Allianz’s Italian operation and Ageas’s Portuguese unit. Whilst these are big name insurers, the operations affected are the overseas companies, rather than the main European arms. The ratings downgrades follow on from the downgrading of the sovereign ratings of 17 Euro zone countries at the end of last week.
However anyone breathing a sigh of relief should think again. The rating agency has yet to decide on the ratings for some of the biggest European insurance groups.
“We have not yet completed our review of the effect of the sovereign actions on Allianz Group, Aviva Group, Axa Group, and CNP Group and have therefore not taken any rating action on these groups” S&P said in a statement.
A downgrade on any of these major insurers will result in significant problems in the market not just for the insurers, but also for brokers who recommend their products.
The insurance industry has long been proud of its gold standard A ratings and this simple measure is used as an indicator by many brokers as to the financial security that the institution presents when recommending products to customers. What is worrying about the current market is the fact that ratings are not, as is traditionally the case, slipping by a small margin, but are in some cases dropping through the floor.
Groupama is a good case in point. Here is an insurer with good reserving practices, a conservative approach to risk and a good record on underwriting, who many brokers would have recommended with confidence in May last year. However the company has seen their ratings tumble in from a healthy A- in May 2011 to BBB- in December 2011.
The problem with the headline grabbing downgrade is that brokers and customers start to get nervous. Groupama are putting up a good case to defend their reputation – they have reminded the market that the UK operation is independently capitalised and ring fenced by the UK regulatory regime with a solvency margin of around 190% and an investment portfolio that is in sterling with no exposure to Euro-debt. So in many ways this is an insurer brokers should still be able to recommend and that customers should have confidence in.
The issue of course is that the insurers have used their A ratings with such success in the past as a benchmark that it is difficult to reverse that mindset. Insurance brokers are conscious that their professional indemnity cover is rated on the amount of business that they place with insurers who do not have an A rating and their customers often demand a rating of A or above to secure contracts with councils, large companies and government bodies.
Groupama is a comparative minnow when looking at the likes of Aviva, AXA and Allianz. If the ratings for these huge insurers are downgraded and they suffer the same loss of confidence from the market then the insurance market will be in for very turbulent times.
All of this presents real challenges for insurance brokers and IFA’s who will need to consider long and hard the financial prospect of the insurers that they recommend if they are to avoid a professional indemnity claim being made against them. Bearing in mind the speed at which ratings have dropped, the recommendations that an broker or IFA makes will need to be well documented and take into account factors which go deeper than the S&P rating which will provide the insurer with the ability to survive a crisis of confidence.
Last week a judge ruled that a UK student can be extradited to the US on a charge of copyright infringement. Richard O’Dwyer funded his university education by setting up the website TVShack.net which hosted links to films and TV programmes.
In his defence O’Dwyer has pointed out that the material was hosted on a server based in the UK and did not contain copyright material. Further at no point during his activities did Mr O’Dwyer leave the UK.
The US Immigration and Customs Enforcement agency (ICE) has sought extradition of Mr O’Dwyer on the basis that even if the activity was legal in the UK, .net and .com addresses are routed through American infrastucture based at Verisign in Virginia and the prosecution can therefore be considered under US law.
The case is interesting for UK based web developers, IT consultants and businesses that specialise in the tech industry because it highlights the exposure that these businesses have to actions from around the world, even if the business is very small or does not trade outside of the UK. The nature of the business means that every web site has the potential to reach and breach the laws of countries around the globe. The result is the potential for legal action against both the business and the directors.
Whatever the rights and wrongs of the situation, O’Dwyer has had to face the onerous financial cost of defending himself against the extradition and the cost of appeal. These costs will be irrecoverable even if when the case is eventually heard, he is found to have done nothing wrong. In the event that he is found guilty then not only will he face up to five years in a US gaol, he may also have to pay damages for infringement of copyright.
This case highlights how owners of web sites with open forum discussion groups or income generating possibilities, whether small, huge or not for profit, must consider carefully how to protect themselves and why all Tech businesses, whether family run or Limited, should buy good quality insurance protection to pay the cost of defending this type of action.
There are two relevant types of insurance cover which are essential – Professional Indemnity and Directors and Officers cover.
Professional Indemnity Insurance (PII) for tech professions will provide cover for defending claims for inadvertent copyright infringement and will also cover the cost of damages which arise from such actions. The cover will be subject to a pre agreed limit and an excess, however if you buy a good quality insurance policy then the defence costs will normally be covered without excess or limit.
PII cover for tech professions needs to be on a geographical and territorial limit basis of Worldwide (including USA and Canada) for it to provide adequate protection.
Professional Indemnity cover will not provide insurance to pay for the cost of defending the extradition hearings or appeals. However a good quality Directors and Officers policy will provide this cover. A Directors and Officers policy is normally bought by Limited Companies or Clubs, Societies or Associations, however they can be adapted to suit sole traders to provide protection against the risks faced by individuals.
For further information about Professional Indemnity Insurance for IT professionals and Directors and Officers Insurance please call PI Expert on 01825 745 410
Much has been written in recent months about the changes in how solicitor practices conduct business. The so called Tesco laws which allow non lawyers to own a solicitors practice came into force on the 3rd January 2012 and Alternative Business Structures (ABS) became a reality.
Ironically, despite five years of free advertising, Tesco’s have so far declined to take part in the party.
In fact there has been little interest so far in forming ABS’s – the Solicitors Regulatory Authority reported “more than 10 applications” had been received by close of play on the first day. With an ABS licence predicted to take up to nine months to secure, it seems unlikely that ABS will have an immediate impact on the legal market. However the scene is set for the corporate money to move in and this will inevitably be a game changer.
The Jackson reforms are the other wind of change that’s blowing through the legal services market. The Government seems set on banning payment and receipt of referral fees by solicitors and insurers by amending the Legal Aid, Sentencing and Punishment of Offenders Bill. Legal firms who rely on referral sources to generate their case load need to start planning now or these reforms will seriously affect the flow of business. Referral agents and After the Event Insurers (ATE) will also considering their future.
Inevitably the interested parties will find a work around whereby work and money continues to flow to legal firms, referral agents and insurers. This might result in the formation of ABS companies where the business owners are drawn from the three affected business sectors and possibly incorporating financial advisors to mop up commission due on investments that are made on larger compensation or court of protection settlements.
Whatever the reason for setting up an ABS, the parties need to be aware that of how the new ABS’s will be regulated in respect of the sales of general insurance and investment business. Currently any legal firm that undertakes this work or derives income from the sales of these products is covered from a regulatory point of view by the Law Society. However the Law Society has said that they will not be responsible for these companies and therefore any ABS which wishes to profit from this type of income will need to seek authorisation from the FSA. (click here to view FSA Policy Statement) An application to the FSA for authorisation will further complicate and prolong the time that it takes for an ABS to be in a position to begin trading.
From a professional indemnity insurance point of view the ABS will still need to buy cover from the approved SRA insurers, however it will be important to ensure that the policy also covers professional indemnity risks arising from the fees generated by any work that is regulated by the Financial Services Authority.
Alternative Business Structure who need advice on Professional Indemnity Insurance can call PI Expert for help and advice. PI Expert specialises in Professional Indemnity for ABS firms and Solicitor practices.
The news that the Ratings Agency Standard and Poor is considering downgrading the credit rating of a number of European Insurers will strike fear into the heart of the Insurance Industry in the UK and the Professional Indemnity Insurers that underwrite General Brokers and Independent Financial Advisor’s.
The underwriters under threat of a ratings down grade include household names such as Aviva, Allianz, Axa and Generali. RSA Ireland is also on the credit watch list. If the downgrade goes ahead they will join the recently downgraded Groupama, a well regarded medium sized insurer who has already seen their credit rating downgraded as a result of their exposure to Government securities.
The problem facing insurers is that to maintain their credit ratings, they have placed their funds in what has traditionally been considered as safe investments. The current economic crisis has changed the face of safe investments – investments in financial institutions, banks and government securities have been undermined, maybe irretrievably. Reinforcing this view, Standard and Poor have stated that the review of the insurers ratings will be based on their review of the Eurozone member governments.
It follows that if there is a downgrade in the credit rating of the government underwriting the securities then the insurers investing in them will also suffer a downgrade in their credit rating. S&P have stated that the rating review could see some insurers long term ratings lowered by as much as two notches.
The effect of Government Debt on the profitability of insurers is illustrated very well by the recent results published by Allianz. In November this year the firm announced a fall in third quarter profits of 80%, largely due to losses on Greek debt. To put this in perspective the German Insurer made profits of just 258m euros in the three month period, down from 1.27bn a year ago.
The Greek debt is the tip of the Iceberg, and exposure to Government debt in Italy, Spain and Portugal has yet to really play a part in insurers results. If S&P carry out their threat to down grade Germany, the Netherlands, Finland, Luxembourg and Austria by one notch and France by two, this will have a significant effect on insurers and could put pressure on solvency margins, leading to possible insurer failures.
For Insurance brokers and IFA’s these potential downgrades are significant cause for concern. The British Insurance Brokers Association recommends that members place cover where possible with A Rated insurers. As a rule of thumb to recommend an unrated insurer or one with a lower rating must be justifiable if a professional indemnity claim is to be avoided. Circumstances where this might be appropriate would include risks where no alternative insurer is available for example some solicitors Professional Indemnity or Surveyors PI cases or those where the only affordable insurance cover is unrated or low rated.
The fifteen firms affected by the S&P credit watch negative ratings warning involves some heavy hitters within the Insurance Industry and will make recommending insurance cover more challenging over the coming months. Brokers will have to consider how the Euro crisis could affect the rating of insurers over the period of the policy. Now, more than ever, it will be important for brokers to document the consideration that they have given to the financial security aspect of an insurer when making their recommendation – a factor which many brokers would not have even thought to question with the likes of Axa, Aviva or Allianz in the past.
IFA’s will need to be extra careful too- some of the insurers affected have a big exposure on the UK Life and pensions side as well as on the general market – Aviva, AXA and Generali are all major providers of Life Investment and Pension products to UK consumers.
Many Professional Indemnity Insurers look to see each year what the exposure is to unrated and lower rated providers as a rating factor when setting premiums. A broker or IFA who has made sensibly based recommendations during the year to what appeared to be strong financial institutions, could find that as a result of an insurer down grade, unforeseeable even three months ago, they have a portfolio of higher risk policies. This will affect Professional Indemnity Premiums.
The decisions take this weekend by the Eurozone leaders may well be a step in the right direction to strengthening the Euro and thus avoiding a crisis, however the will to push this through will need to be considerable and PI Expert is not convinced that this exists in either the politicians or the populations of the member states in the Eurozone.
For incisive help, advice and quotations on Professional Indemnity Insurance for Insurance Brokers and Independent Financial Advisors please call PI Expert on 01825 745 410