A “fragmented and barely functioning” professional indemnity (PI) insurance market is “the biggest threat to adviser businesses” in 2020, Beaufort Group chairman Simon Goldthorpe has said.
Goldthorpe said there was a "clear fallout" from the move by insurers to step back from the PI market: "The PI insurance market has seen a huge contraction in the number of insurers operating within it. As a result, we now have a situation where firms that are already insured are struggling to change insurer, and the best an adviser business can often do is hope that its existing insurer will renew."
In March, the Financial Ombudsman Service (FOS) compensation limit rose from £150,000 to £350,000. This prompted the Financial Conduct Authority to ask advice firms to double check their PI insurance to ensure they were covered for the new FOS limit. As a result of the limit hike, some insurers introduced restrictions or upped insurance prices.
The advice network chairman suggested the PI insurance market could not be considered a 'market' anymore because there was such few insurers remaining.
He added: "Those that have remained can just cherry pick what business they want to do, and the industry is not far off from the situation where there are no insurers left to cover IFAs at all."
In November, the Personal Finance Society (PFS) warned the regulator that excessively high PI insurance premiums were crippling advisers' ability to work with DB transfers after advice firms had reported PI premium rising as high by as much as 500%.
An alternative to PI insurance restrictions is "soaring excesses", Goldthorpe continued. He said he has heard of excesses increasing five-fold over the last five years.
"This is a huge threat to IFAs and in most cases it has occurred through no fault of their own. It needs addressing urgently as the market we have now is very inefficient."
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