The advice industry spent more than £110m on professional indemnity insurance last year, but the smallest firms are bearing the brunt of what many have increasingly warned is a hardening market.
In data published by the Financial Conduct Authority this morning (July 23) the City watchdog revealed the average bill paid by advisers for their insurance was more than £24,000 in 2019.
As a whole, advice firms which renewed their professional indemnity policies last year spent £110.3m - a 17 per cent increase on the £94.4m bill in 2018.
The figures include the renewals of many advisers who have told FTAdviser in the past year that their premiums have rocketed upon renewal, with one small firm telling the Personal Finance Society its bill had increased by 900 per cent.
According to this morning's data the smallest advice firms, with annual revenue of less than £100,000, bear the brunt of insurance costs, paying a higher proportion of their revenue in premiums.
Source: The FCA
In April last year the regulator increased the compensation limit of the Financial Ombudsman Service from £150,000 to £350,000, a move that has been widely credited for the hardening PI market which followed in its wake.
Since the increase advisers have reported rising premiums and the increased introduction of policy exclusions, particularly in relation to advice in the defined benefit transfer market.
According to the FCA's data, premiums as a percentage of regulated revenue increased last year for financial adviser firms when compared with 2018.
The regulator said: "The ‘£101k to £500k’ band increased from 2.2 per cent in 2018 to 2.8 per cent in 2019.
"Whilst this represents an increase of 27 per cent this does not represent a significant change in the burden it places on firms.
"These increases are likely to reflect the changes in the ombudsman award limit and claims experienced by the market."
Keith Richards, chief executive of the PFS, said: "The statistics will be of little surprise to anyone and it should be borne in mind these are based on old data [from last year] rather than what firms have been experiencing in 2020."
Mr Richards said smaller firms and those with some defined benefit transfer advice had generally been impacted the worst by rising premiums.
He added: "Taken out, figures for these firms would potentially show a far more stark picture than the one portrayed overall."
Professional body the PFS has repeatedly warned the current professional indemnity market was leaving firms "shockingly exposed" to financial failure amid calls for market reform.
The coronavirus crisis has exacerbated concerns over the insurance landscape, but in April the FCA insisted the market was still open for business and warned the pandemic was no excuse for late renewal.
What do you think about the issues raised by this story? Email us on email@example.com to let us know.