"This is a concern for me because essentially PI is not worth the paper it’s written on anymore. Ultimately it is consumers who may lose out on the right protection and any compensation bill will fall to the rest of us if the firm goes bust."
But self-insuring involves substantial capital resources. The PFS has previously warned the Fos changes had forced advisers to increase their overall charges to offset higher insurance premiums.
David Hearne, director at Satis Wealth Management, said: "We may not need to invest in new factories or spend years on uncertain research and development, but we need capital to cover all the risks we are taking.
"This includes having deep pockets to self-insure and being prepared for a future that may involve lower markets and lower revenues."
The debacle could see more small firms leave the market. There is a sense the regulator may be condoning a shrinking advice market, especially in the DB transfer space: minutes from a meeting in February showed its board backed the Fos increase because it would create a more focused advice market.
Justin King, managing director at MFP Wealth Management, found professional indemnity cover this year on what he considers are "reasonable" terms, but said his premium had increased significantly.
He thought it "unlikely smaller advisers would begin self-insuring because of the huge associated costs" and instead expects more advisers to outsource business to defined benefit transfer specialists.
These are then able to manage the risk under their own indemnity cover, he said.
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