Personal Finance Society  

PFS calls for in-depth analysis of PI market

PFS calls for in-depth analysis of PI market

The Personal Finance Society has called on the regulator to carry out an in-depth analysis of the professional indemnity insurance market due to advisers seeing further restrictions and exclusions added to their cover. 

In a renewed criticism of the Financial Conduct Authority's decision to increase the compensation limit of the Financial Ombudsman Service at the beginning of April, the trade body's chief executive called on those advisers who may have experienced problems with their PI insurance to get in touch. 

Keith Richards said adviser concerns raised with the PFS would be presented as evidence to the regulator to help it "better assess the consequences and ultimate impact on the public" caused by the changes to the ombudsman, which saw its compensation limit rise from £150,000 to £350,000.

Since the increase advisers have reported rising premiums and the introduction of policy exclusions, particularly in relation to advice in the defined benefit transfer market. 

The PFS said it is now aware of PI insurers placing restrictions on Seed Enterprise Investment Scheme work. 

An adviser told the trade body his PI premium last year was £6,700 with no exclusions, but when he came to renew the policy at the end of May this had increased to £9,850 and the insurer would now exclude cover for the one, and only, SEIS recommended by the adviser in 2014.

The adviser, who wished to remain anonymous, told the PFS: "The FCA are quick to make changes but slow to undo the damage those changes inflict on an already beleaguered sector."

PFS said it was also aware of instances where insurers had limited the level of cover for future DB pension transfers to £160,000 and not the full limit offered by the Fos. 

Mr Richards said: "The raising of the Financial Ombudsman Service compensation limit has already increased the cost of regulated advice within some firms whilst exposing others to increased financial risk through increased excesses and restrictions.

"Given the impact that restricted professional indemnity insurance cover for DB transfers is already having on the availability of mandated advice for consumer, the professional body is calling on the FCA to undertake a more in-depth impact analysis and potential scenario planning assessment."

The trade body has been vocal in its criticism of the increased ombudsman limit since its inception in April, previously warning the fall out was restricting access to advice as advisers found themselves having to increase overall charges and consider ceasing business in the DB market. 

In May the FCA wrote to PI insurers to reassure them the increased award limit would not negatively affect the majority of their adviser clients, with only a "small minority" of cases expected to involve issues which qualify for the higher award limit.

The regulator said even fewer of these would involve potential awards over the previous compensation limit and made assurances that the Fos had introduced additional quality controls since the rise to ensure consistency. 

One of these controls include a requirement for ombudsmen to report all cases where the potential award for compensation is more than the previous limit of £150,000 to the service's legal team and their senior manager.