There are only four or five professional indemnity insurers active in the UK market, a broker has revealed.
Dan Stuckey, associate director of Onyx Insurance brokers, was discussing the difficulties financial advisers have been facing in obtaining PI cover on the latest FTAdviser Podcast.
He said: “There is a limited amount of capacity in the market.
There are various factors why that has happened, but some is [due to] claims, and historic claims, from years previous, [due to which] insurers have decided they no longer want to partake in the market.”
In April, the Financial Conduct Authority increased the ombudsman's award limit from £150,000 to £350,000, accompanied by a forecast from the PI market that the rise could push up premiums by 500 per cent in a "worst-case" scenario.
Since then some advisers have seen their PI premiums increase exponentially, with the Personal Finance Society confirming recently that one adviser had reported the cost of his insurance had risen from £6,700 to £27,000.
Mr Stuckey explained that this the market has seen a simple supply and demand situation, where the demand is that same as before, but the supply is restricted.
He added: “That has caused an issue, the insurers have been very picky on what clients they want to insure and on what basis.
“The only way around it is new insurers coming into the market. Hopefully it will settle down, but at present it doesn't show any signs of doing so.”
Appearing on the podcast with Mr Stuckey was Philip Hanley, director of Philip James Financial Services.
He said: “I represent a majority of advisers with a very straightforward business model.
“I haven't had the need to shop around or change [PI] providers, but what I have found is that the questions I'm asked are becoming more searching each year. Costs are also increasing at a greater rate that my turnover.”
Mr Stuckey and Mr Hanley agreed that there is a lot of uncertainty in the market.
Mr Stuckey said: “We've seen the claim records for insurers over the past three years, and it is fairly benign.
“It is a hard market, and a hard market usually follows claims, [but] in this case is more the uncertainty about what the FCA will do next regarding defined benefit pension transfers.”
The regulator published earlier this month the results of its survey of 3,015 firms between April 2015 and September 2018, concluding that too much of the advice on DB transfers it has seen was "still not of an acceptable standard".
When asked about what advisers can do to guarantee they continue to have PI cover, Mr Hanley said that they should review the areas of business they are involved in.
He said: “When it comes to renewing PI insurance, the questions asked [by the insurer] provide a very good guide to the areas about which we should be concerned.