Response to consultation on Professional Indemnity Insurance (PII) for mortgage credit intermediaries

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Do you agree that, of the four options presented, option 4 (i.e. setting the minimum amount at the average of the amounts used in Member States) is the option the EBA should pursue, resulting in a minimum amount of EUR 584 000 per claim, and EUR 886 000 per year?

BIPAR General comments:

BIPAR welcomes the opportunity provided by EBA to comment on its draft regulatory technical standards on the minimum monetary amount of the professional indemnity insurance or comparable guarantee for mortgage credit intermediaries under Article 29(2) (a) of the draft Directive on credit agreements relating to residential immovable property.

This issue is of great interest to BIPAR. Practitioners (investment, credit and insurance intermediaries) affiliated to BIPAR via their national associations have or will have to obtain PII or a comparable guarantee as required by EU law as a precondition to be able to provide their services.

BIPAR’s response is based on answers received from its member associations from Austria, Belgium, France, Ireland and the UK.


BIPAR answer to the question:

We agree with EBA that at this stage option 4 appears to be the most feasible and reasonable option. However, this does not mean that we fully support the levels of minimum amount defined in this option. Simply applying an average based on the levels of minimum PII cover across the EU member states ignores the rationale behind each EU member state’s current minimum amount, where PII cover is already required.

EBA has made clear the difficulty of obtaining meaningful data on claims in option 1. However, the reason behind each EU member state’s minimum PII level should be investigated by the EBA to ensure that any average amount is based on a consistent rationale.

We would prefer an aggregate amount per year as claims are extremely rare. If however the choice is made for a combination of a minimum amount per claim and per year, then we would favour a lower figure for the single claim of €292,000 per claim as being more reflective of the likely maximum claim.

In point 4.2 on option 2 (pegging the minimum amount to the Insurance Mediation Directive), EBA explained that “as in other options considered in this paper, PII for mortgage credit activities would be in addition to any other, already existing, cover the intermediary may have to take out and this would, coincidentally, result in a doubling of the coverage level compared with the IMD PII. (…) Intermediaries that carry out both insurance intermediation and mortgage credit intermediation would see their minimum amount double (…)”.

In many EU markets there is a cross-over between the two activities, insurance intermediation and mortgage credit intermediation. In most of the cases, this means for the intermediary, an extension of his IMD PII coverage, and not the doubling of it (Belgium, Ireland, Austria etc…). Most credit intermediaries are authorised as insurance intermediaries under their national legislation and would hold one PII policy that would cover their mortgage and insurance business.


Whatever option will be chosen by EBA, BIPAR believes that it is important it allows flexibility for Member States and to take into account the specificities of their respective markets. It is important to point out that if PII cover is not available, the market cannot function. Discussions should be carried out in consultation with stakeholders at national level.

Do you consider the number and the compensatable loss of compensation claims arising from the activity of mortgage intermediation to be lower than, the same as, or higher than those arising from insurance intermediation? Please explain your reasoning.

This discussion has to be based on facts and experience.

Do you know of options other than those listed in this consultation paper that the EBA should consider when deciding on the minimum amount of coverage?

There are important factors, related to the issue of PII cover that have to be looked at. These include assurability, capacity and willingness of the insurers to insure, policy wording, the price of coverage, new liability considered by the law, cross-border coverage, deductibles, alternatives to insurance…

The EBA has not considered in particular the issue of comparable guarantees in its proposal.

In the UK for example, firms may apply an excess to their PII. The current regulatory requirements for mortgage brokers are:
• For a non-client money holding firm the excess must not be more than the higher of:
 £2,500; and
 1.5% of annual income.
• For a firm which holds client money or other client assets, the excess must not be more than the higher of:
 £5,000; and
 3% of annual income.

A firm may apply an excess which is higher than the relevant limit, to do this it must hold additional capital as calculated in accordance with the appropriate FCA table.
The ability to apply an excess is an essential characteristic of the UK market. It allows firms to achieve a lower PII premium without exposing consumers (and the market) to additional risks. Furthermore, having an excess is an established feature in other insurance markets and we see no reason to exclude this option from the EBA’s PII requirements.

Still in respect of the UK market, there are concerns about the ability of some parts of the mortgage intermediary market to obtain PII cover. The second (mortgage) charge market has traditionally been priced out of the PII market. Whilst PII cover is currently voluntary for these firms, under the Directive it will no longer be. Many of the second charge firms that do currently have cover, pay a high premium (compared to first charge brokers), have high excess and only retain their cover for fear of not been able to re-obtain it again the future. Accordingly having the ability to have excess provisions supported where appropriate by additional capital requirements should be allowed where domestic regulators feel it appropriate for their markets. There should be an alternative, if not the PI insurer becomes the regulator.

The UK PII market currently works well and efficiently for first charge mortgage brokers with insurance market capacity and premium levels that are not a barrier to entry. There are concerns that by increasing the minimums to the extent proposed will lead to higher premiums which if combined by the loss of the ability to have excesses or capital alternatives, could reduce adviser and market capacity.

Finally, account has also to be taken of the fact that when it is known that credit intermediaries have PII cover, this may cause more claims due to moral hazard.

Do you consider threshold(s) that distinguish between more than one minimum amount of PII coverage to be a desirable feature? If so, please explain how such a threshold should be devised.

We propose clearly explained thresholds such as:
- Coverage for business start-ups including only the minimum and adequate PII in relation to the number of cases or the turnover per year.
- Coverage with thresholds based on the turnover
- Additional coverage for intermediaries cashing funds on behalf of companies (financial guarantee)

Thus, distinguishing these guarantees could allow a better control of price without imposing disproportionate guarantees to the actual activity of the intermediary.

Name of organisation

BIPAR