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Cost of PI cover rises as sterling takes a hit

The cost of professional indemnity cover for advisers may rise as the value of the pound against the euro drops, according to PYV.

PYV managing director Neil Pointon says PI cover is set at €1.5m (£1.3m), compared to £1.15m 12 months ago.

While most underwriters have been absorbing the increase due to a soft market, he predicts this will change as the market begins to harden. When it does so, Pointon expects “underwriters may start to pass the increased costs on to advisers”.

Informed Choice managing director Nick Bamford agrees that the falling value of the pound will have a direct impact on premiums.

He says: “It is a shame to hear that prices are going to increase, especially during a recession, but unfortunately it is an unavoidable consequence of the exchange rate.”

Collegiate Management Services legal and claims director Martin Archer argues that current stockmarket volatility will have more of an effect on the price of premiums than the exchange rate.

He notes that the recent volatility is causing nervousness among underwriters concerned about the value of underlying assets.

He adds: “We have seen the number of claims go up in times of recession and I think underwriters are more concerned about that than marginal exchange rate shifts.”

The regulator says it will not get involved in the pricing of PI cover.

A spokesman says: “The FSA takes UK professional indemnity insurance requirements from the EU directive, which is set in euros. The underwriters’ decision on how to price PI will be a matter for the insurance companies.”

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