Should estate agency and surveying be split into two PII policies?

We often speak to businesses that offer both estate agency and surveying services. Some of these firms ask to insure the lower risk agency work under a separate PI policy from the higher risk surveying work. Greg Harrison looks at the advantages and disadvantages of this approach.

Disadvantages:

Cost

It is likely that the total premium spend for two separate policies will be more than the total spend for one policy. Most insurers will apply size discounts for firms with higher fee income. These are less likely to apply where two separate policies are maintained.

Professional Indemnity Brokers and Premium credit providers will often charge administration fees. Two policies means there will be two sets of administration fees to pay.

Insurer appeal

It can significantly reduce the attractiveness of the surveying side of the business to insurers and this can increase premium.

The number of insurers prepared to quote significantly reduces if income from valuations for lending exceeds 10% of a firm’s total fee income. As a result, it is easier to get insurers interested in a business where 90% of the income is from agency and 10% from surveying than it is to get insurers interested in a business that generates 100% of income from surveying and valuing. 

Insuring the two activities separately can also increase the likelihood of the surveying side of the business being unable to obtain PI insurance in the wake a financial crisis.

Administrative burden

Maintaining two separate PI policies adds to the administrative burden.

Advantages

It ensures that the Professional Indemnity policy for the agency side of the business is protected in a downturn but to ensure a robust position, the PI policy for the agency side of the business should expressly exclude claims arising from the provision of either surveys or valuations.

However, renders the policy non-RICS complaint so dispensation would need to be sought from the RICS if the agency side of the business is RICS regulated.