Advisers who actively manage their company’s risks throughout the year will put themselves in a better position to get more favourable professional indemnity insurance (PII) cover.
According to Elaine Parkes, head of client relationships at compliance firm Bankhall, while the PII market continues to be challenged, leading to rates inevitably fluctuating, there are still actions advisers can take to “control their own destiny”.
Ms Parkes said: “Advisers do not need to put themselves at the mercy of the market. Each firm is assessed on its own merits, with various factors taken into account when determining premiums.
“A good example is a firm’s approach to risk management. PI insurers expect all advisers to have robust procedures in place for identifying, assessing and controlling risk, so it is vital for firms to be able to clearly demonstrate this.”
Bankhall said that in its conversations with advisory firms, PII cover is a recurring theme. Getting cover, the cost of cover and worries over whether it will pay out in the event of a claim, are all causes for concern for advisers.
This worry has become more prevalent as a result of a rapidly changing regulatory landscape that includes defined benefit transfers.
But while high-level market trends are an important factor, Ms Parkes said the reality is that each firm’s PII premium will also be significantly influenced by its individual circumstances.
This depends on factors such as the size of the firm, its claim history and its ability to show robust risk controls.
There is also the mix of business to consider, which is based on current and past business.
Ms Parkes added: “A strong internal risk management system can protect you from a claim, as it puts you in a stronger position to defend it. So we encourage financial advisory firms to look very carefully at their processes, particularly in high-risk areas such as pension transfers.
“This is to ensure processes stand up to challenge from the FCA in the event of a future thematic review and should there be a challenge from Fos down the line.”
Ms Parkes said key areas to consider include:
Phil Billingham director at Perceptive Planning said advisers should also maintain strong relationships with their insurers by regularly keeping in contact with them. As business models evolve, the more the insurer knows about the firm the better it will be for the IFA come renewal.
Additionally, Mr Billingham said advisers should consider reviewing areas in which they are not actively giving advice, but which causes their premiums to go up, because it is part of their permissions.
Email: ima.jacksonobot@ft.com