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&#39Use compensation scheme to self-insure advisers&#39

The FSA should reform professional indemnity insurance so that the Financial Services Compensation Scheme provides cover for advisers, an IFA argues in a letter to FSA chairman Howard Davies.

In the letter, which marks the first responses to Money Marketing&#39s call for firm FSA action over the growing PI crisis, Langtons IFA managing director Colin Langton points out that current excesses are so high that, in the event of a big claim, most IFAs would be likely to go into liquidation, leaving the FSCS to pay out.

Instead of paying infl-ated PI premiums to insurers, Langton says IFAs should pay increased levies straight into the FSCS as a way for the industry to self-insure.

Nicholls Stevens proprietor Carole Nicholls says: “It is an excellent idea but the problem is that we are likely to find, as the lawyers did with a similar plan, that the claims will exceed what we add to the pot.

“However, we have to provide the consumer with some kind of cover. The whole point of the legislation is to protect the consumer.”

Langton says: “It is the FSA inviting claims that is forcing PI premiums up. This is something that just would not happen in any other industry.

“In fact, we think it is probably illegal. If people are approached, their memory about what happened in the past is bound to be selective if they are offered a big payout.”

The FSA declines to comment.

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