The Financial Conduct Authority has been slammed by the head of a PI underwriting agency for failing to outline wording for personal indemnity insurance for financial advisers.
Responding to a question from one of the delegates on the issue at the IFP conference in Newport, Rory Percival, technical specialist at the FCA, said the City watchdog was unlikely to address the concern.
He said: “[We are] not a heavily prescriptive regulator, [we are] a more principles-based and outcome focussed. We do not have prescribed wordings for life insurance contracts, for investment funds, for advisers charging disclosure, for suitability reports – we do not have a prescribed wording for all of these different legislative and regulatory aspects. That is not what we do.
“The second reason why it would be problematic is because it is fairly counter-intuitive from a competition point of view.
“One of our statutory objectives is to promote competition in the interest to consumers so prescribing contracts or key element to contracts will effectively be inhibiting to competition.”
Shaking his head in disapproval, Jamie Newell, managing director at O3 Insurance Solutions, later told Financial Adviser that advisers have difficulty when it comes to understanding the exact wording of professional indemnity policies, including the difference between civil liability and negligence.
He added a more stringent approach to the wording of PI policies is likely to snuff out malevolent adviser firms and would ultimately result in cheaper Financial Services Compensation Scheme levies.
Mr Newell said that a host of professions, including law, mandate a certain standard of PI insurance clause, what exclusions are acceptable and the claims notification.
He said: “The FCA do not mandate anything so the insurer can write their own policy wordings so all sorts of exclusions can be added into claims.
“Having one standard wording policy, which all the insurers subscribe to, makes life far simpler.
“It is a detriment to adviser because if it is mandated it would get rid of the bad firms because they would be uninsurable, and then the levies will not go up because we got rid of the bad firms. Why they do it I do not know.”
Mr Newell’s confrontation with the FCA comes after last month the Personal Finance Society warned advisers that facilitating requests from ‘insistent clients’ could cost them when they renew their professional indemnity insurance cover.
Speaking at FTAdviser’s Retirement Freedoms Forum in London, Keith Richards, chief executive of the PFS, said that specialist insurers are alert to future risks around advice relating to defined benefit scheme transfers.
“You have to remember that just like car insurance, these contracts are annually renewable and they may well take the next opportunity to increase excesses or impose exclusions.
“Be wary in helping the government with their pension freedoms,” he added.
myron.jobson@ft.com
