PI rates to rise due to structured probe
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PYV has warned that professional indemnity premiums and excesses could increase for all IFA firms as a result of the FSA forcing big structured product sellers to review their past business.
PYV director Ian Boscoe says underwriters will look to balance their exposure. He says: “This will affect all firms, even the smaller ones that did not deal with structured products. If underwriters are paying claims for larger firms on their book, they will have to spread the cost across the book.
“Even if there are not any significant claims for compensation, most underwriters will react anyway because they will see the review as a threat and will be concerned about potential claims.”
Threesixty has warned advisers to consult their PI insurers before reviewing their structured product back book to ensure they do not invalidate their cover.
Threesixty strategy consultant Phil Billingham says: “Advisers would do well to have a conversation with their PI insurers about what review
Collegiate Management Services head of underwriting Richard Turnbull adds: “All good PI insurers will issue guidance on the review that does not contravene their terms of cover. I would be surprised if insurers did not want to be involved in this process from the very beginning.”
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Readers' comments (3)
Julian Stevens | 28 Oct 2009 12:38 pm
Hindsight reviews are illegal. But the FSA is a law unto its own self and routinely ignores the law as applied to everyone else.
Let us hope the new Conservative administration sorts this out.
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Anonymous | 28 Oct 2009 1:31 pm
Not sure that the intention for the structured probe is to increase Pirates in the industry :)
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Anonymous | 29 Oct 2009 7:59 am
So PI premiums look set to go up whether fault is found or not and IF the FOS deem that in their opinion the adviser didn't explain counterparty risk well enough (search the FSA's Moneymade clear website for the word before thinking about this), then claims will be upheld and small firms PI as many have an excess of £5k on each claim, so let's say an adviser has arranged a modest 30 structured products over the last 5 years of on average 5k (ISA limits remember often play a part here), then the small firm has to pay a total excess of £150k before the PI insuer pays anything.
I think we may see the RDR rapidly becoming an irrelevance for anyone who arranged a strcutured product if the FSA don't get their head around the fact that collapsing major financial institutions (banks) is NOT the fault of the adviser. Was the client willing to take the risk that an A rated bank would DEFAULT and if the question had been asked at the time, would you expect my firm to pay if the bank defaulted, what would the client have answered at the time?
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