Former Tenet group director Geoffrey Clarkson is gauging appetite among insurers and brokers to create a professional indemnity insurance policy that would cover advisers’ future liabilities.
Clarkson says the initiative is not connected with Tenet, which he left earlier this month, but draws on his experience at the network where he set up Tenet’s Guernsey-based subsidiary Paragon Insurance.
Clarkson is also a former regulatory lawyer for national law firm Bond Pearce, now known as Bond Dickinson.
He says: “My idea would be to try to create a long-stop, seeing as the regulator and the Government are not prepared to do so. I would like to create a commercial solution to a legislative and regulatory problem.”
Clarkson explains his idea is that, depending on their risk profile and balance sheet exposure, adviser firms could choose to insure business risk before a given period in time, for example business written pre-2000.
He says: “With the regulator’s propensity for retrospective reviews, this allows advisory firms to de-risk the business. More importantly, it allows them to add value to the business if they are looking to sell in future. If the value goes up, the likelihood of a sale being successful also increases. The whole industry benefits by the introduction of certainty.”
Clarkson admits the cost could be potentially high, but says this will depend on a firm’s complaints history and business mix. He points out lower risk firms could find it easier to get cover under this proposal.
He is looking at two alternative options to develop the product: a model akin to Tenet’s PI subsidiary which separates higher risk and lower risk businesses, or to put together a consortium of insurers that are prepared to take on the risk.
Clarkson adds: “This is still early days. But the idea is although the premium may be costly, this kind of cover would actually add value to the business. There is a trade-off there.
“Firms can cease to trade, or become unable to meet their liabilities, or not have the capability to handle complaint cases. This would provide a solution the regulator should be pleased with, as it creates greater certainty for consumers and greater stability in the market.”