IFAs should consider setting up captive PI schemes to cut their excesses and premiums, says PI firm Collegiate.
Managing director Tony Howe says a captive scheme could greatly reduce excesses and premiums as the money put into the scheme would count towards the firm's financial requirements and as a piggyback for liabilities.
He says this would also free up capacity in the PI market.
Berkeley Berry Birch IFA network division chief executive Richard Howells has had a captive scheme for a year. He says a firm needing PI cover of £3m could set up a captive scheme of £1m with excesses of around £5,000 and lower its premiums considerably for the remaining £2m as it would be viewed as lower-risk.
Howe says a firm needing cover of £3m without a captive solution would probably be given an excess of £50,000 and a premium of £475,000.
He says: “When firms have a big excess, after a few years, they will have a lot of liability on their books and will have to set aside funds to deal with it. They should think about running their own captive as the money put into this counts towards their financial requirements. We are excited about captive as a potential idea.”
FSA spokesman Robin Gordon Walker says: “If IFAs are using a captive scheme, they have to make sure that what they are getting is valid cover. A captive with proper features would not be banned – our only obligation on IFAs is that they have to have valid cover.”