IFAs are calling for an open forum between insurance companies, regulators, IFAs and trade bodies to...
IFAs are calling for an open forum between insurance companies, regulators, IFAs and trade bodies to discuss the Professional Indemnity crisis before it deepens further.
Intermediaries say a compromise or way of reinstating affordable PI cover needs to be found as many are still struggling to find suitable cover, even after the FSA modified rules governing compliant PI insurance.
Changes to PI rules were announced at the end of last month - just days before the bulk of IFA policies were due for renewal - following negotiations between the Association of IFAs, the FSA and PI insurance providers.
However, insurers and trade bodies say the changes came too late to have any impact, and it could be some time before the "hard" insurance market calms down.
Citing evidence already seen in Australia, IFA Evan Owen says discussions need to be held now as IFAs are making decision to close their businesses because they are so worried about the liabilities no longer covered.
PI premiums rose so high in Australia for anyone needing indemnity insurance that the Australian Senate was forced to introduce legislation last month, to limit the claims which can be made against those insured and encourage more insurers back into the market.
"It is not just financial services companies which are having this problem in finding indemnity cover, it is across the global insurance market," says Owens.
"In some cases, cover is almost worthless because the excess is set at £15,000 and claims are on average less than £3,000. The solution they found in Australia forced providers to bolster regulation on the products and some insurers put money into PI insurance for IFAs who held agency agreements. We have to do something before it gets any worse," adds Owen.
Only a handful of UK insurers and brokers now supply PI insurance to IFAs, however, the problem is now exacerbated as most of these firms are close to hitting the maximum level of business they can transact in the PI sector every year, says Fergus Chappel, marketing director at Collegiate Insurance Brokers.
"Some people were hoping that the FSA relaxation [on PI] would benefit IFAs with 1st November renewals. But it came a little late and I don't think we're seeing the full effect of this yet," says Chappel.
"Insurers can write so much premium income in relation to their capital business, but with the massive rate increases and fewer insurers this year, insurers have been hitting their premium income ceilings and cannot do any more business. It is not that they don't want to do business, they have reached their limit for the year," he adds.
Although there are no definite figures on the level of intermediaries who have yet to renew PI premiums, Owens says he has spoken with IFAs now closing their businesses either because they can't find compliant cover at a reasonable price, or because the excess they would have to pay before making a claim is extremely high in comparison to the average claim made by consumers.
Other PI insurers and officials at the FSA were unavailable for comment at the time of going to press.
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