The FCA is planning changes to its professional indemnity insurance (PII) rules for Financial Advisers. The proposals were revealed in a consultation paper on reforms to the industry’s lifeboat fund, the Financial Services Compensation Scheme (FSCS).
The FCA says it has seen evidence that some PII policies do not fully meet claims and exclude important aspects from their cover. It is also concerned that some firms can find it difficult to buy appropriate policies.
The regulator has proposed a number of changes to the PII regime. These include introducing mandatory insurance wordings, ensuring that policies provide cover for FSCS claims as well as introducing restrictions on policy excess levels and proposals to restrict the use of exclusions. The FCA has said it will hold a detailed consultation on its plans later in 2017.
Some advisers fear the proposals may push up the cost of cover. Mike O’Brien, Group Regulatory Director of IFA network, Tenet, said: “The FCA has acknowledged that the PI market is small and whilst enforcing a minimum standard of cover is probably a good thing, there is a danger that more insurers will pull out of the market altogether or offer to provide cover at an unrealistic cost.”
James Burgoyne, Director – Claims & Technical, Brunel Professions commented “The FCA is planning changes to its PII requirements which may impact the availability and scope of cover. Whilst efforts to remove product exclusions are undoubtedly positive, the requirement to indemnify the FSCS is likely to be controversial, particularly if the underlying claims flow from regulator action or the ombudsman service. Given discontent with a perceived consumer bias and inconsistency in decision making in the Ombudsman service, not to mention with experiences with Keydata still fresh in mind, insurers are likely to see this as regulators writing cheques at the insurer’s expense. This can only decrease market appetite for general participation in this sector.”
But IFAs can still secure high quality cover, if they can demonstrate their firm is a good risk: “The key is for advisers is to be able to demonstrate that they have effective risk management procedures and to work with an insurance broker that can review the whole of the open market to identify the preferred policy.”
The FCA’s consultation on the FSCS is available on its website. Reports on the planned changes have been published by Money Marketing and FTAdviser.
Brunel secures competitive professional indemnity insurance cover for financial advisers in challenging times. To find out more call Mark Sommariva on 0203 475 3275.
