So, you’ve read about the challenges around defined benefit pension transfers, now it’s time to get the right professional indemnity insurance.

The good news is that, although it’s a challenging environment, it’s also entirely possible with the right preparation, transparency, and expert support.

Follow my top five tips, and you can’t go wrong.

1. Engage a broker that understands defined benefit risk

Working with a specialist broker is a must.  

You’ll need someone who has expertise in professional indemnity, experience placing cover for firms with defined benefit transfer permission and knowledge of the Financial Conduct Authority’s (FCA) requirements and regulatory context.

A good broker will help position your firm positively with underwriters, increasing your chances of securing competitive terms.

2. Present your business professionally

Insurers will need a clear and easy-to-understand summary of your risk. Laying it all out in a spreadsheet in advance is a good idea – we can help you with this.

They’ll need to know:  

  • The volume and value of defined benefit transfer cases handled.
  • The age of those at the transfer date.
  • The date of the transfer (this is relevant to the Financial Ombudsman Service compensation awards limit and gilt yields at the time of transfer).
  • Percentage related to other factors such as divorce or ill-health.
  • Qualifications and experience of advisers.
  • Advice process, due diligence, and file quality.
  • Past claims history or complaints.
  • Fees and commission applicable.
  • Number of transfers from a single scheme.

3. Demonstrate robust compliances

Insurers will want to see evidence of robust compliance and client suitability processes. They may also want copies of your documentation; sample cash equivalent transfer value calculations and transfer value analysis system reports; and evidence of cashflow modelling.

They will need to understand the typical process and whether every transfer report is double checked by compliance, internal or external.

If applicable, insurers will also want to see copies of regulatory visit reports and may wish to understand if any past business reviews have been conducted and why.  

Whilst less relevant since the FCA review into the British Steel Pension transfers, insurers will also want to understand what, if any, exposure you have relating to that scheme and details of redress payments made.

4. Compare terms, not just the price

It’s tempting to go for the cheapest option, but inadequate cover will be more expensive in the long run, so when comparing quotes, consider:

  • Policy exclusions: Check defined benefit transfers aren’t excluded. Some insurers will exclude those for the under 50s or those involving insistent clients for example.
  • Limit of indemnity: Ensure cover meets FCA minimums – usually £1.85 million per claim for most firms.
  • Run-off cover: If you cease trading or relinquish your permission to advise on defined benefit transfers, you’ll still need cover for historic advice. That could be deemed a policy exclusion [KC2] if you do not retain DB pension cover following relinquishing DB pension advisory permissions.
  • Excess levels: Many insurers apply a higher excess for defined benefit transfer advice, so make sure the excess applicable is affordable, noting that an excess applies to each claim, meaning you could pay several excesses in a single year. Also remember that your highest excess applies for the purpose of capital adequacy calculations

5. Stay up to date with regulatory changes

The FCA’s stance on defined benefit transfers continues to evolve, particularly in response to high profile cases like British Steel.

Regularly review your cover with your broker and make sure you know the latest about:

  • FCA consultation papers and policy statements.
  • Financial Services Compensation Scheme and Financial Ombudsman Service decisions impacting defined benefit transfer claims.
  • Minimum professional indemnity insurance requirements and changes to insurance wording.

With the right advice, you’ll get the right cover

In a high-risk, high-regulation field, securing the right cover is not just about compliance, it’s about safeguarding your firm’s future.

Engaging a specialist broker, presenting the information accurately and maintaining organised records are your best tools for success.