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Exploding IFA myths

I recently took up an invitation by the London Insurance Market Professional Indemnity Forum to provide a more comprehensive ins-ight into the IFA market to help in its continual quest for education and to challenge a few commonly held myths about IFAs.

It was quite clear from the outset that the insurance market representatives were cynical about our market but also had similar views about other professions such as solicitors, accountants, architects and surveyors, who are also finding market conditions affecting their business.

One key aspect with underwriters today is that they are subject to enormous change. They are losing the traditional tie of offering insurance to anyone and are coming under enormous pressure to be more profit-focused in their underwriting.

Insurance goes in cycles and the outlook is that things will get worse before they get better.

To cope with this, insurers are being urged to know when to say no to risks and not to insure due to historic relationships or practices. I believe greater emphasis will be focused on the risk management processes within firms before the risk is even accepted.

At the forum, I really wanted to promote the adviser marketplace, highlight the merits of the role of IFAs and to broaden underwriters&#39 knowledge of the wider issues that advisers are having to cope with. In essence, I wanted the insurance market to take a more informed view of IFAs as a risk.

To achieve this, my initial argument was that a strong IFA sector will continue to help the Treasury to mitigate tax increases.

I also aimed to challenge the market&#39s perception that IFAs are not “a disparate bunch of commission-hungry salespeople feeding off the ill-informed and vulnerable consumer”.

IFAs fulfil their social and economic duties in a highly professional manner and have benefited through the assistance of the insurance market.

I felt it important to lab-our on the multitude of rules governing the advice process and the protection afforded to clients, including lengthy fact-finds, suitability reports and not least the disclosure requirements. Also, that the FSA is engaging the minds of every senior person in regulated firms and holding them personally responsible for things that go wrong within the firm.

The increasing costs of insurance against the backdrop of lower revenue margins and other rising costs during a period of uncertainty and change within our sector are taking its toll.

I felt I needed to highlight the economic factors that underpin some of the problem areas, including endowments, split-capital trusts and structured products and the complexity this presents to the underwriter when considering risks.

To be fair, I also expressed the view that I am not surprised that some PI insurers are avoiding looking at IFA risks because things are not always straightforward. I am convinced that the FSA does want to work with the insurance market and I am further convinced that the prospective introduction of new PI carriers is not a real answer.

A long-term open relationship with underwriters is critical to survival. Short-term solutions should not be entertained.

Some of the audience said they do not take kindly to alternative offshore insurance carriers being sourced to help alleviate the problem. Furthermore, the FSA rule changes have not helped alleviate the problem. Neither has its reassurance to the insurance market that the past days of wide-scale industry reviews are over.

Overall, I posed some questions. Should the insurance market support the IFA sector to help it meet its social and economic responsibilities? I believe it should.

Does the regulatory framework with the detailed disclosure requirements and senior management accountability provide the insurance market with more of an incentive to support IFAs than any disincentive? Again, I think it does.

Will they allow the pros-pect of non-London-based insurers entering their domain to insure risks that they have traditionally supported? I hope not.

Is there anything more that the insurance market can do to engage with those that they insure to create a better method of working, thus removing barriers?

Is looking at a risk framework a new way of determining risk? Sadly, things will get worse before they get better but by ensuring that we collectively fight the IFA corner I hope things will imp-rove sooner rather than later.


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