A small intermediary firm's struggle highlights the pII difficulties
The FSA has started proceedings against Cardiff-based adviser Philip Evans & Associates after the firm was unable to obtain professional indemnity insurance (PII) by a 15 October deadline.
This comes after the regulator pledged it would be patient with intermediaries having genuine difficulty acquiring sufficient cover.
In a letter to Philip Evans dated 8 October, the FSA wrote that failure to provide details of PI cover by 15 October would mean the regulator would consider action to cancel the firm's authorisation, or vary its permission to outlaw investment business.
Having failed to meet the deadline, Evans is now awaiting written confirmation of disciplinary action.
Notice of the regulator's deadline came just four days after another FSA letter to Evans, dated 4 October.
It wrote: 'We have recently initiated a project on PII, building on the information available to us from earlier work. We will consider, among other things, the availability and price of cover, the extent to which this cover meets FSA requirements, the activities of the PII brokers and possible alternatives to mandatory highly prescriptive regulatory requirements. The results of this project will help the FSA determine its future policy.'
While the FSA refused to comment on individual cases, spokesman David Cliffe said the regulator was aware of the problems surrounding PII and is looking at the situation on a case-by-case basis. He reiterated the FSA is committed to working with intermediaries that have made a 'good effort' to obtain PII cover.
Evans maintains he has done exactly that, pointing to a letter he sent to the FSA dated 23 September in which he detailed his attempts in obtaining cover.
The firm's previous PII Insurer Dixon and Manchester declined to renew his policy in late June because it had made a commercial decision to withdraw from the marketplace.
In addition to its normal PI broker Amershill & Associates, the firm used alternative brokers in an attempt to find cover. In a fax dated 19 September, broker Carson Associates said it had placed Philip Evans and Associates' PII papers with five insurers without success.
'This is not because your risk is bad, it is market conditions,' Carson Associates told Evans. 'Because the market is so limited, insurers are giving their own renewals priority and any new enquiries are looked at as and when.' Evans also pointed out to the FSA his firm is a general practitioner and therefore not involved in high-risk activities.
Rising costs and liabilities of intermediaries have made it virtually impossible for many smaller outfits to obtain cover, faced with large premiums and a market that has shrunk to just five insurers writing new PI business.
For Lincoln-based O'Halloran & Company for example, the premium for PI cover has increased from £4,600pa to around £16,600pa, and the excess on the policy is at the very limit of the 3% of turnover allowed.
In previous years, the firm's policy had included a £10,000 excess for pension transfer and endowment contracts and a lower sum for other business; its latest policy contains a £15,500 excess for all life and pension business.
The excesses in the policy are so high that it is unlikely it will ever pay out in the event the firm should need it to, said partner Terence O'Halloran.
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