Professional indemnity insurers could withdraw cover for defined benefit pension transfers at renewal in the future if they see them as being too risky, Personal Finance Society chief executive Keith Richards has warned.
Speaking today at the Money Marketing Interactive conference in Harrogate as part of a panel on regulation, Richards said several PI insurers have exited – and entered – the market in recent years.
He said: “The way PI works is it is an annually renewable contract and it is the right of the insurer to withdraw, alter the terms or remove cover entirely. We have seen some firms exit and join. The challenge we have in the future when it comes to DB transfers, if the insurers see that as an emerging risk that could impact them, then they have the right to exit the market at the next renewal.”
Also speaking on the panel, Zero Support managing partner Phil Young said there are more advisers working with exclusions on their professional indemnity cover than many in the market realise. He added that data showing the risk of individual firms is being under-utilised.
The FCA is examining professional indemnity insurance as part of its review into how the Financial Services Compensation scheme is funded. In its FSCS funding consultation paper, the regulator suggested it could lower the limit that PI insurers can charge for excesses and mandate certain run-off cover for when a firm has ceased trading.
As part of their Gabriel return, advisers have to supply information about their PI cover including start date and end date of policy, name of insurer, annual premiums, which areas the policy covers (mortgage, insurance, or retail investments advising), and any business lines the PI does not cover.
Young said information on advisers’ PI cover could be used to determine which firms might be at risk and which should potentially pay a greater contribution to the FSCS levy.
He said: “There is already quite a bit of information out there that no one seems to be using at the moment, apart from the PI insurers to say we are not going to insure them.”