Financial Conduct Authority  

FCA to meet PI insurers to discuss compensation hike

FCA to meet PI insurers to discuss compensation hike

The Financial Conduct Authority has confirmed it plans to meet insurers in the professional indemnity market to discuss the aftermath of the Financial Ombudsman Service's compensation limit hike last month.  

On April 1 the ombudsman's award limit rose from £150,000 to £350,000, after a short consultation and advisers have since told of their struggle to find PI insurance amid rising premiums and excesses. 

When confirming the rise the regulator estimated the price of PI premiums for defined benefit pension transfer specialists could increase to an upper limit of 140 per cent, but insurers forecast the worst case scenario could be more like an upper limit of 500 per cent. 

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In the weeks following the rise concerns were raised over advisers potentially falling foul of capital requirements as insurers were slow off the mark in interpreting the new ombudsman limit in their policies and would not insure them for the full £350,000.

Some insurers now offer the full £350,000 but with a list of strict requirements and exclusions. 

FTAdviser is aware of cases where advisers saw their PI excess go up as much as tenfold for the coming year as a result of the compensation hike. 

Following the rise insurer Liberty said it had met with the FCA and Fos after requesting clarification of the changes, but the FCA has now confirmed it will meet more insurers to discuss the PI playing field after the increase. 

Last month the Chartered Institute for Securities & Investment's chief executive, Simon Culhane, wrote to Andrew Bailey warning the rising cost of indemnity insurance was damaging its smaller adviser members, claiming honest firms were forced to shoulder the cost of misconduct by others.

The FCA recently announced a drop in adviser fees of 1.1 per cent, reducing the collective cost on advisers to £79.4m despite the regulator seeing an overall increase in its costs. 

The Financial Services Compensation Scheme has also lowered the fees it will collect from advisers this year, it said yesterday, with the final levy to be shouldered by life distribution, pensions and investment intermediaries decreasing from the £175m predicted in January's plan and budget to £153m, a saving of £22m. 

But it has since been suggested the drop in fees will do little to offset the additional costs associated with the changes to the PI market, with some advisers maintaining insurance costs remain their main concern for the coming year