PIA has received a number of enquiries from firms raising issues about the impact of the procedures for the review of phase 2 cases on their PI insurance arrangements. In the interests of giving some general clarification the following paragraphs describe PIA's position with regard to the pensions review and PI insurance.

As made clear in the Policy Statement issued jointly with the FSA on 14 August 1998, the policy adopted and procedures in the model guidance are not intended to require any firm to take any step which will invalidate its insurance cover. The PIA is of the view that the implementation of the phase 2 review (in accordance with the standards and specification which it has prescribed) should not involve firms in taking steps which would lead to the invalidation of any standard PI insurance cover which they may maintain. PIA however reiterates its advice that regulated firms which maintain PI insurance should keep their insurers fully informed of the steps which they take to implement the review and otherwise comply with policy terms.

The Accord reached between the PIA and insurers with regard to the review of priority cases does not apply to the review of cases falling within phase 2. Although the "direct invitation" approach for phase 2 cases is essentially the same as followed under the Accord, firms should pay particular attention to the need to use the investor identification materials specified by the PIA for use in connection with phase 2.

As part of the consultative process which led to the issue of the policy statement in August 1998, officials of FSA and the PIA met with representatives of the PI insurance market. The views expressed on behalf of the PI insurers both formally and in the course of these discussions were taken into account by the FSA and the PIA in reaching their final decisions. In particular, consideration was given to the suggestion made on behalf of insurers, that the investor identification materials for phase 2 cases should largely follow the design of the standard letters which are prescribed for use under the Accord arrangements for the review of the priority cases. The view of the FSA and of the PIA, however, is that the materials designed for use in the phase 2 review are necessary and appropriate for all categories of firm given the need to ensure the maximum degree of success in engaging the investor's informed attention. The FSA and PIA did however respond positively to the suggestion of insurers that the word "mis-selling" be removed from all direct invitation materials. The FSA and PIA remain willing to engage in further discussion with representatives of the PI market and with individual insurers with a view to explaining their position and resolving concerns. However, the regulators wish to make clear that, to date, they have not seen any argument or case which would persuade them to alter the policy published on 14 August 1998.

Accordingly, firms regulated by PIA are required to conduct phase 2 of the review in compliance with the standards and specification prescribed by PIA. In particular this will require them to send out all direct invitation letters and reminders by 31 March 1999. Firms which fail to do so will be exposed to the risk of disciplinary action being taken against them. It would not, in these circumstances, be sufficient for firms merely to accept at face value, and rely upon, statements or concerns which may have been put to them by their PI insurer or by their broker. PIA will expect firms, through their broker where appropriate, to ask their PI insurer to specify exactly how and why (in the insurer's view) the particular PI policy that they hold will be invalidated if phase 2 letters are sent out.