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Do PI exclusions threaten your independence?

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Many advisers and specialist brokers are reporting big increases in premiums and a growing list of exclusions as they look to renew PI cover. This week’s cover story explores concerns that the increased level of exclusions could threaten the independence of adviser firms which cannot get more comprehensive cover or choose cheaper rates with more exclusions.

Having PI exclusions for investments such as VCTs and EIS does not mean a firm cannot be independent as they can self-insure any areas that are not covered.

But although the extra capital required by the FCA is not likely to be prohibitive, experts warn self-insuring could cause a behavioural bias as firms instinctively are less likely to recommend areas where they may have to bear the brunt of any claims that come in.

UBS director Graham Price also offers some tips for advisers looking to improve their risk rating for PI insurance.

Adviser cost burden

In an interview with Money Marketing in January, Treasury select committee chair Andrew Tyrie called on advisers to provide evidence of the total cost of regulation to better hold the FCA to account.

As part of Aviva’s comprehensive research of 1,500 advisers, Money Marketing commissioned some questions which uncovered startling numbers for MPs to consider.

Two-thirds of advisers spend over 10 per cent of their turnover on regulation, with 16 per cent saying such costs swallow up 20 per cent or more of the business they bring in.

Regulatory costs vs turnover for advisers are huge compared with other professions such as lawyers.

Tyrie says this is an important piece of work which raises a number of concerns over costs likely to be passed on to consumers.

Hopefully this research will be a helpful weapon for the TSC as it presses the FCA to deliver better value regulation for clients.

Seven Families initiative

Elsewhere, we hear more about the Income Protection Taskforce’s Seven Families campaign.

This is a great initiative which deserves the support of insurers and the advice sector. The latest Swiss Re report for 2013 reveals a 24 per cent fall in IP year-on-year and a near
60 per cent fall compared to 2003 and highlights the size of the task ahead.

But the creative thinking and energy behind this project is a welcome contribution towards the tough job of convincing more people of the need to protect themselves and their families in case disaster strikes.

Paul McMillan is group editor at Money Marketing – follow him on twitter here

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