Advisers say they support efforts to create a professional indemnity insurance policy to act as an effective long-stop for advisers but fear the costs would make the product unworkable.
Former Tenet group director Geoffrey Clarkson is gauging appetite among insurers and brokers to create a form of PI cover that would cap advisers’ future liabilities.
The initiative is unconnected with Tenet, but draws on Clarkson’s experience in setting up Tenet’s Guernsey-based subsidiary Paragon Insurance, and his time as a regulatory lawyer.
Clarkson wants to develop run-off cover which is more readily available to advisers. His idea is adviser firms could choose to insure business risk written before a given period in time, for example business written pre-2000.
One model he is considering is something similar to Paragon Insurance, which separates higher risk and lower risk businesses. Another alternative could be to put together a consortium of insurers prepared to take on the risk.
Clarkson says: “My idea would be to try to create a long-stop, seeing as the regulator and the Government are not prepared to do so. I would like to create a commercial solution to a legislative and regulatory problem.”
Personal Touch Financial Services marketing director David Carrington says: “I admire anyone trying to find a solution to a market that is pretty traditional and inflexible. But the challenge is run-off cover for advisers is limited as it is, so surely more comprehensive cover is going to cost more. The firms that really need the cover will push the price up to a level that will be unattractive to most people. Whilst firms may be able to get the cover, I just fear the cost would be prohibitive.”
Chase de Vere head of communications Patrick Connolly says: “In principle everybody is going to want more protection. But the level of cover, and how much it costs, will make or break this idea.”
PI broker IFA Solutions managing director Jamie Newell says: “No two PI policies are the same. Whether you call it run-off cover or a long-stop policy, there could be certain conditions and exclusions which if triggered would stop the policy from paying out, such as a claim arising due to the insolvency of a provider.
“Whilst there is probably an appetite to offer long-stop cover for longer periods, there would be extremely tight conditions and exclusions attached.”
Apfa policy director Chris Hannant says advisers face limited options when trying to secure run-off cover, and the products available are not consistent with those offered to solicitors and accountants.
Hannant says: “I wish Geoffrey luck with this, and if he can develop a longer term product and get insurers to buy in, that would certainly help a lot of advisers.
“But we will still press for change, because we think that is the right thing to do. There is still a need for both this kind of product and a long-stop.”
Highclere Financial Services partner Alan Lakey says he does not want to take away from Clarkson’s efforts to help advisers, but is concerned such a product would reduce the lobbying pressure on the regulator.
Lakey says: “By going down this route we are giving ammunition to the regulator to say, ‘you are sorting the long-stop issue yourselves, you do not need us to change the rules’. I know of someone who previously tried to get a quote for 15-year run-off cover and was quoted £75,000. That is not feasible for anyone. What we want is for the regulatory rules to be changed to reflect UK law.”creat