One of the main concerns currently facing financial advisers is the dysfunctional nature of the professional indemnity insurance market. Numerous complaints have surfaced about rapidly changing terms and premiums and the fact that an increasing number are either no longer able to obtain cover, or are being forced to pay an extortionate amount for a policy with extensive exclusions.
These difficulties have not been helped by the significant financial failures of Keydata and Arch Cru, and were brewing back when adviser network, Honister, blamed its insolvency on high PII costs in 2012. But, according to many, this year in particular has seen premiums increase substantially. and even more previously approved products make the black list.
Kevin Moss, the director of Cardiff-based ValidPath, claimed that despite few complaints and years of trying to appease PI underwriters, his business is paying 54 per cent more for cover in 2014. PI underwriters, he added, were “more wary” of networks than individual advice firms because of past high-profile failures, and his business was being punished for that despite demonstrating its responsible nature.
Risk
He agreed that underwriters had to take a certain “view of things”, but was surprised that his company’s efforts to mitigate risk seemed to have had no impact on the terms of cover it got and were instead reflective of the whole marketplace.
“In the 12 years I have been running this firm we have had 17 complaints, of which six resulted in some sort of redress being paid,” he added. “We have only had three claims that resulted in a claim against PI cover.
“You would not have expected then that this year we are paying 54 per cent more for less cover. We do not do anything new without running it by our PI people. We are very far from gung-ho. PI insurers keep changing the goalposts. It goes up each year, which we would expect as our turnover has increased. But those increases were modest. This year, however, it was a huge jump.”
Planning ahead
According to Mr Moss, it is impossible to plan ahead when the terms of cover are constantly changing. Using an example from a few years ago when one of ValidPath’s appointed representatives were approved to do business with a Ucis – before they were banned by the regulator – he said that now that cover was gone it was completely
liable.
“The way the market operates on a year-to-year basis means we never know what is available to cover, which makes it difficult to plan ahead,” he added. “The cover you have is only subject to the terms you have in that year.”
As a relatively new business, Phil Billingham, founder of the London-based Phil Billingham Partnership, said his firm’s PI cover was “cheap” and easy to manage.
He raised concerns, however, that several good firms were now struggling to get cover, and blamed this worrying situation on there being too few providers in the market.
“Most current insurers are not looking to expand their books, so if your insurer drops out of the market or you want to shop around you will have problems. There is very little capacity in the market,” he added.
