PI warning over FOS limit rise to £150,000
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Advisers must check their professional indemnity insurance policy to ensure that they are covered when the Financial Ombudsman Service award limit increases to £150,000 in January, according to Howden Insurance Brokers.
In June, the FSA confirmed the FOS’s maximum award limit will rise from £100,000 to £150,000 from January 1, 2012.
Howden director of retail Neil Pointon says the majority of PII policies state that the maximum limit for FOS adjudications is £100,000.
He says: “Advisers could be held accountable for the extra £50,000 if they fail to check and update the wording in their policies. The general feeling is that underwriters will agree to the higher limit but they are not happy about it.”
Last month, the FSA also set out new complaint-handling rules, including the abolition of the “two-stage” complaint-handling process.
The change means that firms must respond to consumer complaints with a final decision in the first instance and can no longer issue a provisional finding.
The regulator says this will ensure firms resolve complaints fairly and do not dismiss them on first contact with the complainant. The change will be introduced in July 2012.
Pointon says the streamlining of the complaint process, in conjunction with the inc-reased award limit, is likely to push up premiums for advisers.
He says: “The changes will no doubt increase premiums but if there is enough competition in the market, costs should remain reasonable.”
Syndaxi Chartered Financial Planners managing director Rob Reid says: “It is always sensible for advisers to check their excess and level of cover whenever there are changes to the Financial Ombudsman Service rules. Advisers should not assume that their policy will remain current.”
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Readers' comments (1)
Opinion of Anthony Speaight QC: | 26 Jul 2011 5:21 pm
Opinion of Anthony Speaight QC:
“There are growing concerns that the pendulum of consumer protection has swung too far in the case of the Financial Ombudsman Service and small independent financial advisers. The FOS appears regularly to be exercising its discretion to adjudicate upon claims against small IFAs up to its maximum theoretical jurisdiction of £100,000 (NOW £150K). There is rarely an oral hearing. And there are good reasons to believe that sometimes FOS makes substantial awards in cases which would be rejected by the courts. On other occasions compensation seems to be calculated in a more generous manner than a court would assess damages. Some such IFAs are wholly uninsured; others have to bear very large excesses. There is no appeal on the merits.
Such a system would be tolerable if the maximum award were modest – say £5,000 (which is the maximum summary compensation under the legal professions’ schemes for “inadequate professional service”). It would also be tolerable if, as is the case with the summary system of adjudication in the construction industry under the Housing Grants Construction and Regeneration Act 1996, there could be a complete rehearing before a court. And it might even be tolerable if it were applied only against very large companies
But an unappealable, compulsory, summary jurisdiction against small traders making awards as great as £100,000 (NOW £150K) is, in my view, both wrong in principle and producing injustice in practice.”
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