body wants pI insurance exemptions for intermediaries with less than £500,000 turnover
The Life Insurance Association (LIA) has called for intermediaries with turnover of less than £500,000 to be exempt from the FSA requirement for professional indemnity insurance (PII).
In a submission to the FSA following the release of its consultation paper on proposed changed to PI cover, CP169, the LIA said the regulator is putting extreme pressure on small firms with its PI requirements when PI cover is not available to many small intermediaries.
The FSA has been reviewing its rules on PI cover after IFAs reported enormous hikes in premia and difficulty in obtaining sufficient cover to satisfy regulatory requirements.
'In the longer term, we would hope that there might be an industry solution which provides sufficient resource to meet claims arising from errors or omissions. But in the short-term, many small IFAs suffer what they see as a retrospective change in their authorisation requirements,' John Ellis, head of public affairs at the LIA said.
Capital adequacy levels for IFA firms have previously kept low to keep small operators in the market, on the understanding that the public was protected by banning many such firms from handling client money and requiring them to have PI insurance.
'If PII is not available, it is not enough now to say that such firms must have more resources in order to stay in the market,' Ellis said.
The association noted that removing the PI requirement for small firms would mean some additional claims may fall on the compensation scheme, but said a long-term solution such as a dedicated mutual insurer should be identified as a matter of urgency.
Ellis said in a letter sent to the FSA that while the long-term PII reform proposals in CP169 could eventually force a handful of IFAs out of the market, the immediate PI problem needs to recognise smaller firms are being 'asked to do the impossible' by requiring they set aside substantial amounts of capital to meet clients' compensation claims.
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