Damian Fantato 

Insurance market needs action from the regulator

Damian Fantato

Damian Fantato

One of the earliest forms of insurance is carved in stone in the Code of Hammurabi, the code of law of ancient Mesopotamia.

It says that if a merchant receives a loan to fund a shipment, they could buy a guarantee that the loan would be cancelled if the shipment sank or was stolen – an early form of the maritime insurance.

It is fair to say that advisers are probably feeling a bit miffed over their professional indemnity insurance.

The problem they face is that insurers believe the risk of covering the business of providing financial advice has gone up.

Not only does this mean premiums have gone up, but that most Lloyds syndicates, which wrote PI insurance, have been making a loss over the past six years.

Apart from costing advisers a lot of money, this has also meant the number of insurers active in the PI market has gone down – the Financial Conduct Authority estimated in 2016 there were only between 10 and 15 companies actively providing this insurance.

This may now get worse after the FCA decided to put up the Financial Ombudsman Service’s compensation limit to £350,000, which the regulator itself predicts could push up premiums by 140 per cent.

Insurance is not a complicated concept; if an activity is too risky then insurers are likely to ask for more money to cover it. But for it to work properly regulators need to do their bit.

The relative risk of your home being burgled will only go down so far – no matter how many locks you have on your door – if the police write off your neighbourhood to crime.

Regulators need to do their bit to help reduce the cost of insurance, which will surely only be passed on to consumers.

And if any further incentive were needed, the Babylonian king Hammurabi was declared a god within his own lifetime for bringing justice to his kingdom. What is not to like?

damian.fantato@ft.com