The Personal Finance Society has warned the shrinking professional indemnity insurance market is “past the point of critical” for advisers.
Keith Richards, chief executive of the PFS, said the professional body only knew of two insurers now writing new cover for advisers who advise on defined benefit transfers.
The Financial Conduct Authority’s supervisory work in the DB sector this year, combined with its decision to increase the compensation limit of the Financial Ombudsman Services in April, has widely been blamed for shrinking the PII market.
Advisers have been faced with the introduction of policy exclusions, particularly in relation to DB transfer advice, and in some cases premium increases of 500 per cent.
Speaking with FTAdviser, Mr Richards said: “Our information tells us there are only two firms at the moment that are writing new business for IFA PII [on defined benefit work]. Only two firms in the whole market.
“And the risk is that it could do more harm if we start to see redress coming after the FCA’s thematic review and supervisory work. Early indicators show the FCA is not satisfied with some of the reviews they’ve uncovered.
“The whole problem therefore over exposes the market and it’s just going to continue to cause problems and increase costs.”
Mr Richards added: “It’s a failure of the system of using PII as an annually renewable contract that it just doesn’t protect either the consumer or advice firm in the way in which it was originally intended.
“There is massive risk to really good firms, to their clients, to the market and our professional reputation.”
One of the biggest players in the PII market, Liberty Specialty Markets, told FTAdviser it was still writing new IFA business – with the exception of DB pension transfer business.
Generali said it had not closed its doors to IFAs, but it was now more “selective” about the risk it underwrites. The insurer did not specify if this applied to DB work.
Collegiate, AmTrust and London Insurance Market Exchange Limited did not respond to requests for comment.
Gary Kershaw, compliance director at The SimplyBiz Group, said he was not aware of any PI insurers currently taking on new business in the DB market.
Mr Kershaw said: “The insurers that will renew policies for existing customers in the DB market place will be asking a lot more questions about your processes and including additional limits and increased excesses.”
Mr Kershaw warned the shrinking market could see access to advice diminish, making it “virtually impossible” for consumers to seek help on pension transfers.
He added: “There is no appetite from PI insurers to come back in the market – this will be a long-term problem.”
DB transfers worth more than £30,000 cannot go ahead unless the saver seeks financial advice first.
Mr Richards said after the general election the professional body planned to petition the government for changes in legislation, which would ensure advisers are not “forced to turn their back on offering pension transfer reviews”.