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Professional Indemnity: Royal Institution of Chartered Surveyors

Regulated firms must have adequate professional indemnity insurance that complies with RICS rules. Insurance manages risk for the firm and protects clients. RICS ensures firms are adequately insured to maintain public confidence in the profession. Firms must purchase insurance consistent with their risks and consult brokers, as insurance has limits and exclusions and is not a guarantee.

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66 views5 pages

Professional Indemnity: Royal Institution of Chartered Surveyors

Regulated firms must have adequate professional indemnity insurance that complies with RICS rules. Insurance manages risk for the firm and protects clients. RICS ensures firms are adequately insured to maintain public confidence in the profession. Firms must purchase insurance consistent with their risks and consult brokers, as insurance has limits and exclusions and is not a guarantee.

Uploaded by

Dorothy Mwesigye
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Professional Indemnity

All regulated firms need to ensure they have adequate and appropriate professional indemnity
insurance in place that complies with the requirements of Rule 9 of the Royal Institution of
Chartered Surveyors (RICS) Rules of Conduct and the RICS Minimum Terms.
Insurance is a key part of managing your firm’s risk. That firms maintain insurance is also in the
interest of members’ clients and therefore the reputation and standing of the profession. This is
one of the main reasons RICS takes a role in ensuring that firms are adequately insured.
Whilst this guidance focuses specifically on valuation contracts, a member firm’s Professional
Indemnity Insurance policy will also cover all other aspects of the firm’s professional services.
All members should be aware of the following points about Professional Indemnity Insurance:
In arranging Professional Indemnity Insurance, you should ensure that the amount of cover
purchased is consistent with the nature of your firm’s practice and proportionate to the risks
taken by your firm. Always consult specialist insurance brokers in arranging your firm’s
Professional Indemnity Insurance.
Your firm’s risk management must not begin and end with putting in place professional
indemnity insurance, because insurance is a contract, which contains limits, conditions, and
exclusions: It is not a guarantee, and it will not cover everything. Careful attention to the terms
of engagements (including the use of liability caps), and ensuring consistent quality in valuation
practice and reporting, continue to be fundamental to effective risk management.

Rule 9 states;
‘A firm shall ensure that all previous and current professional work is covered by adequate and
appropriate indemnity insurance cover that meets standards approved by the Regulatory Board.’
Everybody is capable of making mistakes. Even in the course of most well-ordered practice,
there will come a time where an allegation of negligence is made against a member. It is
essential for the maintenance of public confidence that members are properly insured against
such risks.
Clients who are therefore disadvantaged will be safe in the knowledge that they can be
recompensed regardless of the financial position of the member.
Accordingly, Rule 9 for firms provides that every firm should ensure that all previous and
current professional work is covered by adequate and appropriate insurance. This is a
fundamental regulatory obligation. Failure to comply with the rule is likely to threaten you and
your firm’s to right to practice.
The insurance obligation applies to regulated firms and members practicing as surveyors or who
are held out to the public to be practicing as surveyors and who are:
• Sole principals
• Partners
• Directors or
• Consultant, to firms providing surveying services.
Therefore, the rules applies to members described as partners or directors even if they are not
properly described as such at law. Rules do not apply to members who
• Work in the public sector or
• Provide surveying services to their employers on an in house basis and not to clients
Aim
The purposes of having professional indemnity insurance are to:
• ensure that if the firm faces a claim, it is protected from financial loss that it cannot meet
from its own resources;
• protect the insured member or firm against the consequences of its liability to pay
damages to third parties for breaches of professional duty that it commits through its
professional activities; and
• ensure that the firm’s clients do not suffer financial loss, which the firm cannot meet.
Firms will adopt different ways of meeting these aims according to their size, the risks
attached to the type of work they carry out and their resources.
RICS requires that a PII policy should meet the following standards
The nature and extent of the insurance must be adequate and appropriate having particular regard
to:
• an ‘each and every’ claim basis;
• RICS’ minimum policy wording or more comprehensive wording. As a minimum, you
• should ensure that your policy wording is written on a full civil liability basis; and
• the minimum level of indemnity based on the firm’s turnover in the previous year (or
estimated for a new firm).
Firm’s turnover in the preceding year Minimum limit of indemnity
£100,000 or less £250,000
£100,001 to £200,000 £500,000
£200,001 and above £1,000,000

Table 1: Minimum limit of indemnity


To manage their risk adequately, some firms may wish to hold a higher level of indemnity.
Maximum level of uninsured excess (the part of each claim the firm must pay itself)
Limit of indemnity Maximum uninsured excess
Up to and including £500,000 The greater of 2.5% of the sum insured, or
£10,000
Over £500,000 2.5% of the sum insured

Table 2: Maximum level of uninsured excess


Fully retroactive
Professional Indemnity Policies work on a ‘claims made’ basis. This means that the policy
covers claims that are first made against the insured during the period of insurance regardless of
when the negligent act occurred. If the retroactive date of the policy is stated as ‘none’ then the
policy is fully retroactive and all former work carried out by the firm will be covered. [ CITATION
Roy19 \l 1033 ]
Run-off cover
To ensure that firms, members and their clients are not exposed to financial detriment in the
period following a firm ceasing to trade, RICS requires firms to obtain fully retroactive run-off
cover.
The minimum policy requirements are:
For consumer claims
For a consumer (any natural person acting for purposes outside their trade, business or
profession) claims, the requirement is for a limit of £1,000,000 in all for a period of six years
from the expiry date of the policy in force at the time of cessation. RICS’ minimum policy
wording will automatically provide this coverage.
RICS members may deem that it is adequate and appropriate for run-off for consumer claims to
be an on an ‘each and every claim’ basis. RICS would expect run-off on this basis to be a
maintained for a minimum period of six-years from the cessation of the practice. It may be
arranged and paid for on an annual basis, provided that in the event of the policy not being
renewed, a minimum limit of £1,000,000 in all for a period of six years from the expiry date of
the policy in force at the time of cessation is maintained.
For non-consumer claims
The requirement is for firms to have adequate and appropriate run-off, but RICS would expect
run-off to be a maintained for a minimum period of six years from the cessation of the practice.
Run-off for commercial activity may be arranged and paid for on an annual basis.

References
Royal Institution of Chartered Surveyors. (2019, July 2). Professional indemnity insurance requirements.

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