FSA to decide on £100m Arch Cru redress scheme in November
Dear CEO letter warns professional indemnity insurers against avoiding claims to the detriment of consumers.
The Financial Services Authority has confirmed that it will publish a policy statement in November detailing its decision on a controversial £100m redress scheme for Arch Cru investors, which is currently under consultation.
The regulator launched the consultation at the end of April, with the deadline for responses set at the end of this month.
The scheme would require IFAs which sold Arch Cru funds to contact their customers within four weeks of rules being made, indicating whether or not their case falls within the scope of the scheme.
Where redress is due firms would be able to use an online calculator to work out each payment, taking account of how much each investor is able to claim from the separate £54m voluntary payment scheme provided by, among others, the Arch Cru authorised corporate director, Capita.
Should the scheme go ahead, the FSA has confirmed that it would become effective as of January 2013.
The clarification on the timetable for the scheme is contained within a ‘Dear CEO’ letter sent to the heads of professional indemnity insurers and signed by Clive Adamson, the FSA’s director of supervision.
In the letter, the regulator addresses concerns among IFAs that the proposed redress scheme is affecting their PI cover as insurers are refusing to accept notifications of potential claims.
The letter states firms have told the FSA that they have attempted to notify their insurers of circumstances which are likely to lead to a claim, as they are required to do under their insurance terms, and have been told that they cannot do so on the basis that the FSA is consulting on a proposed consumer redress scheme.
These firms are concerned that when they come to renew their policies, cover for Arch Cru claims will be excluded and that they will therefore face significant liabilities without the benefit of any insurance cover.
The FSA says in the letter: “To be clear, it is not our intention to dictate what risks insurers should cover, nor are we seeking to require insurers to go beyond the cover as described in the relevant PII policies.
“But we are certainly prepared to consider taking action where insurers seek to breach or avoid their obligations to the detriment of consumers. We would remind insurers of their contractual and/or common law duty to act with due regard to the interests of their insured.”
Some PI experts have warned that PI cover for cases such as Arch Cru is being heavily scrutinised by insurers due to the high level of claims and fears over whether this is affordable.
For example, while the current redress scheme is seeking in excess of £100m, Neil Pointon, director of Howden Insurance Brokers, said that total PI premiums in the adviser sector only amount to around £40m.
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