Defined Benefit  

How advisers are responding to PII challenges

How advisers are responding to PII challenges
(FT montage/Charlie Bibby)

Professional indemnity insurance premiums may be stabilising for some advisers compared to significant hikes in previous years, but insurance brokers who look for cover for financial advisers warn the market is not in a healthy place.

Insurer appetite remains cautious, while PII cover still represents a significant expense for businesses, which have to manage the capital adequacy implications of increasing excesses and potential restrictions on their policies.

Additionally, any increase – no matter how small – is still having a compounding effect on the more substantial increases seen in previous years. One adviser, Felix Milton, a chartered financial planner at Philip J Milton & Company, has seen his PII costs rise by 55 per cent in two years.

Advisers are having it tough and in the absence of any real reprieve in the immediate term, the onus is on them to make certain changes to ensure their survival.

Chris Davies, executive director at Howden Insurance Brokers, says IFAs have been concerned about whether cover would actually be available, the limitations on terms being offered by insurers and the increasing policy excess level that would be applied in the event of a successful claim – factors that cause a business to set aside additional capital to meet its regulatory resource tests.  

He adds: “When combined, these factors are potentially existential for firms. While significantly increased premiums are extremely unwelcome, they are rarely the reason firms fall into administration.”

Julian Brincat, insurance broker at Protean Risk, says: "After years of significant increases we have seen some stability but it is fair to say that firms that are still involved in DB transfers and have high numbers can still find that they are experiencing increasing rates but this very much depends on the firm, how it is being presented to insurers and the renewal strategy.

"We are seeing that many firms that we work with are experiencing growth, and this is not necessarily due to any particular increase in DB transfer activity. This is a positive for the industry but it does mean that many firms are experiencing an increase in premium due to this alone, even if the rate applied does not increase.

"It also seems that the smaller firms take the brunt of the increased rates with larger firms able to access more insurers and benefitting from some economies of scale."

According to Brincat, the biggest threat to advisers' PII is the potential of any more insurers withdrawing from the market and a continued reluctance for new insurers to enter. 

“Many of the participating insurers are supportive of the IFA sector, but there are too few to provide a healthy environment,” he adds.

“The market needs more good-quality entrants with long-term ambitions to come in and provide capacity and at the same time work together to innovate the offering and help firms minimise their exposures rather than just compensate.”