A forecasted 50% hike in the cost of professional indemnity insurance (PII) is yet to filter through to the industry but will do so during 2010, a leading underwriter says.
London-based insurer Collegiate last year warned of a significant increase in PII costs for financial advisers as a result of increased claims brought about by heavy drops in investment returns.
Although it is yet to see significant price shifts across the industry, it expects that to change during the next year.
"Claims have been through the roof, as you would expect really with investment returns down 40%," underwriting director Richard Turnbull says. "But I don't think it has really filtered through yet.
"We said there would be a 50% increase in PII costs and I still think that will be the case.
"The perception of an IFA's advice is very clearly linked to the investment return and, although there has been a mini rally, we are still 30% down on 2007."
Turnbull says he expects the financial sector to see "another Lehman Brothers-type collapse" in 2010, potentially bringing with it a flood of new claims against advisers.
But he is unsure whether advisers have yet to adopt what he calls "better defences" to protect themselves against client complaints and claims. "We'll know more in a year," he says.
Last August Collegiate, which has both underwriting and claims arms and says it insures more than 15% of the UK IFA population, said the number of claims it processed had doubled in the previous 18 months.
It also criticised some PI insurers, as well as trade associations and compliance providers, for being unclear about which exclusions some policies feature and "emphasising price above coverage".
But Turnbull says he has not noticed any major activity on the exclusions front, adding: "Insurers can have whatever exclusions they want".
Annuity market worth £4bn in 2017
For ‘distress’ caused
Oversees £30bn of advised and D2C assets
Less than a third of top paid employees are women
£1bn business since inception