Adviser PI premiums soar up to 900%

Adviser PI premiums soar up to 900%

Professional Indemnity Insurance premiums have jumped as much as 900 per cent on last year's bill as advisers fight to manage the potential financial fallout from the Covid-19 disruption.

Matthew Aitchison, managing director at Clear Vision Financial Planning, said his premium had increased by 250 per cent when he enquired about renewal this month. 

He said his turnover had increased, which partially contributed to the rise, but he has only completed three defined benefit transfers for ongoing clients in the firm's nine-year history. 

Keith Richards, chief executive of the Personal Finance Society, said he knew of one small advice firm which, upon recent renewal of its policy, had seen a 900 per cent increase in its premium from £13,000, the level at which it had been over the last four years, to £130,000. 

Last year, the PFS warned it knew of only two insurers writing new cover for advisers with DB transfer work, but Mr Richards said it was now "almost impossible" for an adviser to seek alternative terms for historic DB work.

He said: "It is unlikely you will get any cover for retrospective DB work with a new insurer. Sticking with a current insurer at least brings with it some level of continuity of cover, albeit at hiked premiums."

The DB transfer market has borne the brunt of the hardening insurance landscape for advisers.

Mr Aitchison added: "Once I renew on these terms I will not be covered for transfer work and have to remove my permissions - it was a tiny part of my business but it's more the fact I will now not be able to offer this type of analysis to clients.

"I don't blame the insurers; it is a result of the market we are in. There is no ability to shop around and if your current insurer offers you cover, you take it.”

It has been one year since the Financial Ombudsman Service compensation limit increased to £350,000, a move which many have blamed for the hardened professional indemnity market.

But the PFS has warned the current coronavirus pandemic is set to exasperate the landscape, with Mr Richards describing it as a potential "powder keg" for those advisers whose cover is due for renewal while the UK is on lockdown.

Mr Richards added: "PI is struggling as an insurance product not just in our sector, but also in other sectors as well and of course insurance more broadly is being impacted quite significantly by the coronavirus.

"Areas that look high risk will be far less attractive and one of the big weaknesses of PI when linked to financial regulated advice is the fact the cover is annually renewable.

"This means insurers can start to de-risk themselves or continue to put hardened terms, together with increased excesses and big premium hikes and advisers are left with no option - having to absorb it or share the cost with their clients."