Advisers are increasingly seeing professional indemnity cover as a formality to satisfy Financial Conduct Authority rules that offers no effective protection, according to one IFA who was refused by 16 separate insurers after making his first ever claim.
In an interview with FTAdviser, to be published later today (8 November), Ian Broadbent, director of Lincolnshire-based Blue Sky Mortgages, said that he was forced to make a claim on his PI insurance in May 2013 as the insurer did not want to fight a claim in court.
Mr Broadbent, who maintains that the complaint would have been thrown out had it gone to court, said he subsequently found it “hugely difficult” to obtain PI cover and was refused 16 times.
The revelation will fuel concerns that surfaced last year that professional indemnity insurance cover is becoming prohibitively expensive and offering increasingly limited protection, as well as over the effects of what some see as a ‘claims culture’ in financial services.
The complaint against Mr Broadbent’s firm came in in March 2012 and alleged that he mis-sold his clients a mortgage. Rather than go to the Financial Ombudsman Scheme, the client had decided to go straight to the courts.
It was resolved 14 months later in May 2013 because his PI insurer decided to settle rather than face more costs in a court case.
He said: “We notified the PI insurer as you would expect. The insurers decided to pay out which I was extremely unhappy about... they decided to as it was a lot cheaper than going to court. We have never had any complaint upheld against us.
“We appointed our own defense in London but had that complaint gone to the Fos, I am 100 per cent certain it would have been thrown out but because they [the law firm] dragged it out. It took 14 months to the point where we were going to court... by this time the cost on our side was £32,000 and we had not even set foot in the court.
“The insurers advised me that they throught the total cost would be at least £100k if they allowed it to go to court. They weren’t prepared to take that chance as once you get to court it can be a flip of a coin really.”
Regarding his PI cover, Mr Broadbent said he now sees this as a formality that he could never in practice claim against - and he said he knows other advisers and brokers that treat their cover in the same way.
He said: “In the end I finally got PI cover but now, as far as I am concerned, I can’t make a claim because a second claim means I will pretty much not get PI cover again and I’ll be out of business.
“So I am paying for PI cover - and I know other brokers are doing the same - but not notifying or making any sort of claim against the PI cover.”
Mr Broadbent said in particular he knows of other brokers who upon receiving a complaint are funding the cost themselves, “which can be pretty significant particularly if it goes to court”.
He said: “I know of one broker, he was offered a PI cover on an enormous excess - and I mean enormous - and he said we shall never ever make a claim against it. So it’s purely to satisfy the FCA to have that bit of paper.”
The full interview with Mr Broadbent will be published later today.
