Mortgage Brokers Professional Indemnity Insurance
Independent mortgage intermediaries, residential lending advisers and specialist finance brokers sit in an awkward place for insurers. Most of the work is regulated home finance, with complaints going to the Financial Ombudsman Service, but a busy brokerage will also arrange bridging loans, commercial mortgages and development finance that sit partly or wholly outside FCA regulation. A policy has to answer both, and it often answers one far better than the other.
How a firm is authorised changes the insurance question. A directly authorised broker must hold professional indemnity meeting the FCA's requirements in MIPRU, which set minimum limits and restrict the excess a firm can carry. An appointed representative is normally covered for its regulated advice by its principal's arrangements, and the principal is responsible for that advice, but that cover may not extend to unregulated business the representative arranges in its own name.
Consumer Duty has raised the bar on what a broker has to show. Outcomes for clients, fair value of fees and the treatment of customers in vulnerable circumstances are now things a firm is expected to evidence, and a complaint about a product fee or a lender recommendation will be judged against that standard rather than against whether the mortgage was simply available.
We can advise directly authorised brokers, appointed representatives and specialist finance introducers on professional indemnity that fits their permissions and the business they actually write, including the protection and general insurance sales that many mortgage firms make alongside the mortgage.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Unsuitable mortgage recommendation
A client placed on a product with an early repayment charge that blocked a later remortgage, a term running well past retirement without a plan for repayment, or an interest only loan with no credible repayment vehicle. The ombudsman will look at what the client was told and what the file shows was considered.
Applications that misstate income or circumstances
Where an application overstates income or omits commitments, the lender may pursue the broker, particularly where the error originated in the broker's own data entry or where self certified figures were not checked. Allegations of complicity in mortgage fraud are harder still, because dishonesty is excluded and the defence has to start from the file.
Protection sold, or not sold, alongside the mortgage
A broker who arranges life or income protection faces claims when a policy is voided for non disclosure that the adviser did not properly explore. A broker who did not discuss protection at all may face a complaint from a family left with a mortgage and no cover, depending on what the client was offered and what the file records.
Bridging, commercial and development finance
Much of this is unregulated, so the client cannot always go to the ombudsman, but they can go to court. A bridging loan with no realistic exit, a development facility that fell short of build costs, or a commercial deal where fees and charges were not explained can produce substantial claims, and some wordings restrict or exclude unregulated business.
Second charge, equity release and later life lending
Specialist products with their own permissions and qualifications. Later life lending in particular attracts complaints from family members after the borrower has died or moved into care, often many years after the advice, when the build up of interest becomes visible.
The cover we arrange
We arrange professional indemnity and related insurance around the services you provide, the clients you work with and the contractual requirements you face. The appropriate cover and limits will depend on your individual activities and the terms available from insurers.
Professional indemnity meeting MIPRU
For directly authorised firms, a policy that satisfies the FCA's requirements on limits and excess for home finance and insurance distribution activities. The wording has to be read against the firm's actual permissions.
- Limits set by FCA requirements
- Excess restricted under MIPRU
- Matched to permissions held
- Ombudsman awards and court claims
Unregulated finance and introductions
Cover for bridging, commercial mortgages and development finance arranged outside the regulated perimeter. Worth confirming specifically, because a policy written for regulated home finance may say little or nothing about this work.
- Bridging and commercial lending
- Development finance introductions
- Appointed representatives' own business
- Declared as a separate income stream
Complaint handling and defence costs
The cost of responding to complaints, preparing ombudsman submissions and defending lender claims. In a high volume brokerage these costs accumulate before any award is made.
- Ombudsman case preparation
- Legal representation
- Lender recovery claims
- Aggregation of related complaints
Run off
Continuing cover after a firm stops trading, sells its client bank or gives up its permissions. Complaints about interest only and later life lending can arrive many years after the advice.
- Continues after permissions end
- Relevant on sale of the client bank
- Long tail on later life lending
- Arranged before ceasing to trade
Cyber, office and liability
Brokers hold payslips, bank statements and identity documents for every applicant, which is exactly the material used for identity fraud. Employers' liability can be arranged where required, subject to the policy terms, and is legally required once you employ staff.
- Client document and data breach
- Email compromise and redirection
- Office contents and equipment
- Employers' liability where required
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- Whether the firm is directly authorised or an appointed representative, and of which network
- Permissions held, including second charge, equity release and insurance distribution
- Income split between residential, buy to let, later life, protection and unregulated finance
- Volume of bridging, commercial and development finance arranged, and typical loan sizes
- Number of advisers, their qualifications and how files are checked before submission
- How income and affordability evidence is verified before an application goes to a lender
- Fee structure, and how fair value is assessed under Consumer Duty
- Complaints, ombudsman decisions and lender claims over the last six years
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
Business mix
Plain residential and remortgage work is typically rated more favourably than later life lending, second charge or development finance, because the size and timing of complaints differ considerably between them.
Authorisation structure
Appointed representatives buying their own cover usually need it for activities outside the principal's arrangements, so the price reflects that narrower scope. Directly authorised firms carry the full regulated exposure.
Complaints record
Upheld ombudsman complaints and lender recoveries weigh heavily. A low complaint rate supported by evidence of file checking is one of the strongest positions a firm can present at renewal.
Excess and capital
A higher excess lowers the premium but, for directly authorised firms, may increase the capital the FCA expects the firm to hold. The two have to be considered together.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
Unregulated business not declared
Many policies only respond to the activities declared on the proposal. A broker who began arranging bridging or development finance after the policy started may find that work falls outside cover until it is disclosed.
Fraud and dishonesty
Deliberate misstatement of a client's income by an adviser is excluded for the individual involved. Innocent principals are usually protected, but only if the firm's procedures stand up to scrutiny afterwards.
Investment and pension advice
A mortgage broker's policy may not respond to advice on investments, pension release or repayment vehicles that strays beyond the firm's permissions. Advice outside permissions creates both a regulatory problem and a gap in cover.
Fines and regulatory penalties
Penalties imposed on the firm by the regulator are generally uninsurable. Redress paid to clients following a complaint is a different matter and is what the policy is there to answer, subject to its terms.
Common questions
Do appointed representatives need their own professional indemnity?
Regulated advice given as an appointed representative is normally the responsibility of the principal and covered by the principal's arrangements. Many representatives still need their own policy for unregulated work such as bridging and commercial finance, or because the network requires it. Check what your principal's cover actually includes before assuming you are protected.
Does our policy cover bridging and commercial finance?
Only if it says so. Some policies written for regulated home finance cover unregulated lending introductions as a declared activity, others restrict it or exclude it. Declare the income from this work separately so the cover is clear before a claim rather than argued about after one.
How does Consumer Duty affect our insurance?
It changes the standard a complaint is judged against. A firm that cannot show it considered fair value, the client's circumstances and foreseeable harm is in a weaker position at the ombudsman. Insurers increasingly ask how a firm has implemented the Duty, and a clear answer helps at renewal.
We also sell protection. Is that covered under the same policy?
Usually it can be, provided insurance distribution is within your permissions and declared on the proposal. Protection complaints typically turn on whether medical and lifestyle disclosure was properly explored, so the quality of the fact find is the defence.
What happens to complaints if we sell the business?
Liability for past advice stays with the firm that gave it unless the purchase agreement and the buyer's insurance specifically take it on. Run off cover is the usual answer, and it should be arranged before completion rather than afterwards.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
Speak to a specialist who understands your industry
Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.