Actuaries

Actuaries work in a number of different practice areas: enterprise risk management, finance and investment, general insurance, health and care, life insurance and pensions.

Enterprise risk management - helping companies understand and manage risk in line with their business objectives
Finance and investment - for actuaries working in banking, corporate finance and investment including researching the pricing and management of investments, particularly in mitigating the risk of investments, and manage the corresponding assets.
General insurance - rating products, advising on reserves and capital requirements, and similar general insurance activity
Health and care - a growing area in both the private and public sectors as health provision models evolve to meet changing needs
Life insurance - a traditional area for actuaries, with the roles evolving as life insurance itself evolves including providing a service to companies which require a range of numerical information investigated, analyzed and explained; e.g. to create and price polices.
Pensions - actuaries play a key role in advising companies on all manner of pension schemes and structures.
Forensic or actuarial evidence work - which could include expert witness work which is no longer protected from litigation.

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Regulation

Actuarial firms are authorised by the Financial Conduct Authority (FCA) however, the Financial Services & Markets Act 2000, which governs all financial services in the UK, has a provision to allow some professional organisations to act as a designated professional body (DPB). The Institute and Faculty of Actuaries (I&FA) is one of those organisations. This allows actuarial firms to carry out some exempt regulated activities without being authorised by the Financial Conduct Authority (FCA) if they apply for a DPB license from the Institute and Faculty of Actuaries and meet certain conditions.

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What do insurers look for when issuing terms?

Actuarial activities can be seen as having different risk levels dependent on the type of actuarial work being undertaken. As a general rule the profession is seen as being one of the higher risk activities, however, insurers pay particular attention to the activities and regulated activities a firm undertakes in issuing Professional Indemnity Insurance terms as some firms may undertake lower risk activities that others. Attention to details and descriptions of a firms activities should therefore be disclosed on all proposals for insurance. 

Contractors – Contracting is a growing activity in many professions in this modern world and an increasing number of individuals who are qualified actuaries are choosing to contact their services as freelance contractors via agencies where the actuary works within the framework of larger firm providing services under contract rather than being employed. Whilst this activity is a fairly low rated activity for Professional Indemnity Insurance purposes, as the contractor is not trading as a consulting firm it is still often rated with regard to premium more highly than other freelance contractors in other professions.

Freelance Contractor Actuaries can obtain a quote and purchase a policy very economically via a "statement of fact" quote and buy facility provided by Hammond Professional Indemnity Consultants.

Practicing professional firms will be required to complete a proposal form for the purpose of obtaining a quote, however.

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Professional Indemnity Insurance (PII) Requirements

The DPB Handbook states that Licensed Firms shall effect and maintain Professional Indemnity Insurance.

Sum Insured – Not less than the lower of the following two figures:

  • £5,000,000 or £250,000 per relevant person in the Licensed firm.

The Institute does, however, suggest that whilst the above are minimum requirements for Licensed Firms it is strongly recommended they consider what would be an appropriate level in relation to the work undertaken and its clients.

Licensed Firms which carry on insurance mediation activities must additionally ensure that they maintain Professional Indemnity Insurance with territorial coverage extending to the whole of the European Community, such that the total annual Sum Insured, taking into account the amount of the Aggregate Excess and the Per Claim Excess, is at least:

€1,120,200 Euros for a single claim or €1,680,300 in aggregate or, in each case, the sterling equivalent, calculated at the exchange rate prevailing at the time the policy is effected and on each extension and/or renewal.

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Policy Excess

The (I&FA) handbook states that an excess of no greater than the lower of the following two figures:

  • 5% of the annual Sum Insured or £12,500 per relevant person should be applied with some additional levels being allowed for aggregate excess levels. We would refer you to the (I&FA) Handbook for a full description.

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Run-off cover

In the event of a merger, amalgamation, division, incorporation or any other reorganisation of a Licensed Firm, the (I&FA) Handbook states that it is the responsibility of the Licensed Firm(s)  affected to ensure that cover is maintained in respect of any potential run-off liabilities arising from activities of the firm while it held a licence under (I&FA).

The terms and extent of this cover must, at a minimum, be equivalent to that which had previously been held by the Licensed Firm(s) affected prior to the merger, amalgamation, division, incorporation or reorganisation or, if less, the requirements for a continuing Licensed Firm.

The FSA advise members to hold run off cover for a period of six years after they have ceased trading.

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Policy Wordings

Professional Indemnity Insurance can be written in a number of ways. There are civil liability wordings and what we refer to a legal wordings. Cover can be offered on an each and every claim or an aggregate basis with the legal defence costs being dealt with in one of two ways, see "The usual cover" below.

We would favour a Civil Liability Any one claim policy wording with the excess being excluded from the indemnity limit which would meet (I&FA) and FSA requirements.

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The usual cover

There is no recognised Professional Indemnity policy wording set as a standard for all those working as Actuaries, however, with most “miscellaneous” PI wordings cover can differ from insurer to insurer particularly where the cover does not have to meet the terms prescribed by the FSA or the Institute and Faculty of Actuaries, i.e for Freelance contractors.

Some policy wordings provide a limit of indemnity with legal costs in addition to the limit. Others provide limits of indemnity which include the legal cost.  The cost of litigation is high and can eat into the limit of indemnity provided if costs are inclusive a policy providing costs in addition is therefore a better option. Many professionals are obliged to carry PI by their professional bodies. Many of these bodies not only have specific requirements in respect of policy wording but also on the limits a professional must carry and the excesses they are allowed to carry. 

Renewal is an opportune time to check your cover both in respect of your own requirements and those of your professional bodies.

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The usual exclusions

Typically, miscellaneous policies will exclude things that should have more specific insurance:

  • Bodily injury / property damage, except where caused by a breach of professional duty
  • Vehicles
  • Products liability
  • Contractual liability - this is liability assumed under any express warranty, agreement, guarantee unless such liability would have attached anyway. But take care with agreements such as collateral warranties
  • Insolvency / bankruptcy of insured
  • Circumstances known at inception
  • Fines and penalties
  • Claims by financially associated parties - some insurers will cover these claims if they emanate from a third party
  • Radioactive contamination and war

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The usual extensions

Some insurers will include these extensions as standard others wont

  • Libel & Slander
  • Loss of documents
  • Dishonesty of employees
  • Unintentional breach of confidence
  • Infringement of copyright

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Presenting your proposal for insurance

The presentation of your business to insurers is very important both in respect of the facts i.e. the things for which cover is required, and the way in which you do your business, both of which influence an insurer's perception of your business and the risk it poses to them.We would always recommend that in addition to the proposal form you are asked to complete, you provide supporting documents with your proposal such as:

  • A CV showing the principals qualifications and experience in the areas of business to be covered
  • Any Terms of Business or terms of engagement you use
  • A copy of your corporate brochure
  • Details of your website

An insurance history listing all material changes to your business since you first had professional indemnity insurance. For example, mention any previous businesses for which you require cover. It is possible you may be asked for a claims history from the previous business or a copy of its last completed proposal form. Don't forget to include the names of any businesses with which you have merged, or any that you have acquired, as these will need historic cover. Likewise you may have ceased to offer certain services for which cover is still required. Keep a written record of all requests for cover to be extended and any historic or material changes to your business.
This information can be updated each year and provided as an addendum to the proposal. Any certification the business may have i.e. accreditation by a governing or standards council, is also well worth disclosing. Keep your presentation neat and tidy. Bear in mind that an untidy presentation may be construed as an untidy business. Allow yourself time to complete the presentation and remember that a hard copy always look better that a faxed one sent in at the last minute.

The Professional Indemnity Insurance market is relatively small so at the point of renewal, concentrate on asking only one or two specialist brokers to quote. Bombarding the market with requests can result in your proposal being locked out of some markets. Renewal is an ideal time to review your insurance requirements. As your business grows and your contract values increase, it is wise to consider what could go wrong and how much it may cost to settle a claim - and also cover the attendant legal costs.

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Associated Links

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Related Downloads

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