Aifa is warning the FSA it has not properly thought through the consequences of its £110m Arch cru consumer redress scheme and Keydata recoveries on the professional indemnity insurance market.
Last week, the FSA published a consultation to set up a redress scheme for 20,000 Arch cru investors. If implemented, IFAs who recommended Arch cru funds will have to review all cases and pay redress where appropriate.
It comes as advisers who sold Keydata Lifemark products are receiving letters from law firm Herbert Smith, on behalf of the Financial Services Compensation Scheme, as part of the legal bid to recoup Keydata costs.
Aifa policy director Chris Hannant says the pursuit of Keydata recoveries from advisers already has PI insurers “running for cover”, with some insurers denying liability.
He says PI insurers are becoming less keen to offer terms to advisers compared with other sectors. He says: “We are concerned about the overall impact this scheme will have on the availability and price of cover. I do not think the FSA has thought through the wider impact on the PI market.”
Capital Asset Management chief executive Alan Smith saw his PI premiums rise by 20 per cent when he came to renew last week. He says: “The feedback from insurers was there seems to be a new trend of firms being asked to compensate where there has not been a complaint. The regulators seem to be making it up as they go along.”
Last month, insurer Chubb pulled out of the IFA PI market, citing profitability issues. QBE pulled out of the market in December while Beazley withdrew last July, saying the market was no longer profitable.
Howden director of retail Neil Pointon says: “Any exercise that draws out claims against the IFA profession will harden the market, not only for those people with direct exposure but it will also have a knock-on effect for other advisers as well. The redress scheme the FSA is considering will not be received well by PI providers because it will highlight that the FSA could undertake this sort of review in any area it chooses. People will continue to be rated on their individual risk. If the market rises, everyone has to pay more but some people will pay more than others.”
An FSA spokesman says: “We would welcome any feedback from PI providers as part of our consultation on the proposed Arch cru redress scheme.”