Equity Release  

Reduced PI premiums offered to equity release advisers

Reduced PI premiums offered to equity release advisers
Photographer: Jason Alden/Bloomberg

The Equity Release Council has said it will offer adviser members reduced professional indemnity (PI) premiums following a warning from the regulator that the market is being looked at more closely.

The Equity Release Council’s discounted rates will initially be offered by Liberty Mutual Insurance Europe SE. Other insurers on the council’s panel, which it selected with the help of broking group UKGlobal, are not offering member advisers discounts at present. 

The entire panel does, however, “recognise the value of the council’s standards and views membership favourably”, the council added, suggesting all its panel providers will strive to find the lowest premiums for its advisers.

Though the council did add that because each application is judged “on its own merits”, and because insurance providers use different rating factors, it is not possible to guarantee the lowest premium on “every single occasion”.

“Since our standards were established 30 years ago, they have formed the bedrock of the modern equity release market alongside product innovation and consumer demand,” said Jim Boyd, chief executive of the Equity Release Council.

“Further growth is on the horizon as equity release products are used to tackle many of the biggest social challenges facing the UK’s ageing population.”

PI insurance, which protects advisers against claims for loss or damage made by clients or third parties, was accused by advisers of nearing its peak last year. Some advice businesses have seen premiums increase as much as 900 per cent, as a result of the pandemic and ongoing fallout from defined benefit transfer scandals.

The council also estimated 76,000 new and returning customers accessed £4.8bn of property wealth last year.

Boyd added that backing from commercial insurers which understand today’s market “is vital” to help the financial advice community meet this demand.

Earlier this month, the Financial Conduct Authority warned advisers it will look again at the equity release market to make sure it is working in the best interests of consumers.

The watchdog said due to more people reaching retirement either owning their homes outright or with a mortgage, it is considering the work it needs to do to ensure that the market is “working well”. This will include checking standards among intermediaries giving advice.

In 2020, the FCA sounded alarm bells over unsuitable equity release advice after a review found some mortgage advisers were falling short in the market. 

Historically, the term ‘equity release’ has been associated with scandals and customer debt. This is because of a number of instances during the 1980s and 1990s where customers took out an equity release loan only to be left with large amounts of debt which was then passed on to their family members.

An equity release loan unlocks a tax free lump sum of a home's equity. But unlike its predecessors, an equity loan product today allows 100 per cent ownership of the property to remain with the owner. In the past, an equity release loan has seen a lender give a homeowner cash in return for a share in the proceeds of the sale of their property at a later date.