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FCA visits PI insurers as FSCS funding review progresses

Regulator kicks off professional indemnity review as it bids to reform FSCS

The FCA is carrying out a review of the professional indemnity insurance market as it attempts to find ways of making policies work better for advisers.

Money Marketing understands that the regulator has visited at least three major insurers and one law firm to discuss PI funding in context of its ongoing review into reforming the Financial Services Compensation Scheme.

The FCA has also sent round a questionnaire to insurers to gather more data on the market, Money Marketing understands.

PI cover has been attacked by the heads of both the FCA and FSCS in recent years for failing to adequately cover individual advice firm liabilities which end up being funded out of the pooled compensation pot and paid for by the wider advice community.

Discussions with the market have centered around potentially increasing the minimum amount of PI firms have to hold from €1.1m (£975,000) for a single claim and higher than the €1.7m (£1.5m) for aggregate claims.

FCA chief: PI cover is not working for IFAs

In its FSCS funding consultation paper, the regulator suggested it could lower the limit that PI insurers can charge for excesses,  mandate certain run-off cover for when a firm has ceased trading, and wording that would mean PI insurers could not exclude insolvency and the FSCS from being a claimant in policies.

However, the regulator has expressed concerns that placing restrictions on providers could lead to some exiting the market.

A source with knowledge of the review says: “If you take the PI market as a whole, IFAs, along with solicitors, seem to pay the highest.

“A few weeks ago we spoke in terms of what [mandatory terms] on policies would look like. They were worried that there’s few insurers and whether they would agree to it.”

Blog: The FCA’s PI problem is in the numbers

The data collection and discussions are in addition to other meetings the regulator has held with wider industry representatives on FSCS funding earlier this year, including on whether the Personal Finance Society’s proposal to merge PI and FSCS bills would be a viable solution.

The FCA’s review of PI is being coordinated with the wider FSCS funding review. The conclusions and any next steps will be made public later this year.

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. PI Insurance on the whole is not fit for purpose, too many exclusions & opt outs

  2. Fundamentally I suspect the problem is actually quite simple. Insurers know that the FCA and FOS have a history of moving the goalposts and being judge, jury and executioner when it comes to deciding “guilt”. They also know that some of the rulings made by the FOS completely ignore the law and all suggestion of the clients being responsible in any way shape or form responsible for their own actions.

    Given that, is it any surprise that they put major restrictions in place, or exit the market, after all they aren’t charities.

    The fundamental problem with PI is the FOS and some of the crazy decisions it makes. Till that issue is resolved the problem will not be resolved.

  3. Under an FOI request transpires FOS don’t use G60/AF30 etc./ pension specialists to review defined benefit or other occupational pension transfer complaints – as though don’t have anyone with these qualifications. Akin to hospital porters judging brain surgeons. Further , the FOS keep no central record of their staff’s qualifications. As advice grows ever more complicated – this is simply not good enough. Skew the whole system against the adviser.

  4. Has the problem just got better or worse ?

  5. douglas baillie 7th June 2017 at 12:53 pm

    We recently carried out a PI policy conditions review.
    To do this, we engaged with an independent legal expert specializing in insurance policy wordings, and were told that our (very expensive) PI policy was almost worthless, as many of the terms of it were uncompeditive, particularly the numerous exclusions and excesses, which meant that the policy was almost worthless and that virtually all and any claims made on it would probably be rejected.
    Perhaps MM could look into just how many PI claims have been paid out in full, and how many haven’t and publish the results?
    It is also worth mentioning that the FSCS do not come into the picture until a firm is placed in default, by which time it probably no longer exists, and the PI policy is no longer in force. This outcome is exacerbated by the ‘claims arising’ nature of PI insurance, where a claim has to be notified while the policy is still in force.

    • Which is why ditching the need for PI and equitable funding of the FSCS is the only option !

    • Then more fool you for not looking at it properly when renewing.

      Have you sent the report from your legal expert to your PI Insurers asking for clarification on the points raised?

      I have dealt with many claims in the past and never seen a PI policy not pay out.

    • Ever thought the reason for the high PI premiums are down to YOU Douglas Baillie?

      Didnt you have a firm lose a number of complaints at the Ombudsman due to selling green oil plantations, storage pods and overseas hotels?

      YOU are part of the problem and have some neck commenting on why PI doesnt work. Did you pay all of those claims? Or did the firm go bust and dump liabilities on the FSCS? I wonder……

      Apologies if you are a different Douglas Baillie.

    • I dont belive we had a response. Can you confirm if you are indeed the same Douglas Baillie who previously advised clients to invest their pensions into storage pods?

      You know, that one from Perth who has 7 upheld cases upheld against him on the Financial Ombudsman. Like Ms S who transferred her final salary pension scheme into Harlequin. Or Mr M who had ‘the bulk’ of his monies in ‘Green Oil Plantations’.

      The chap Who owned Douglas Baillie Ltd that has been declared in default by the FSCS?

      Im just trying to help clear up some of the reasons why your PI might be so high or why it might not have paid out, as you have complained about above.

  6. I wholeheartedly agree with Duncan Gafney. How can any insurer do any proper underwriting or risk assessment when FOS act with complete disregard for both common and statute law?

  7. Derek Bradley 7th June 2017 at 1:57 pm

    In 2011 I noted with an element of dismay yet some lack of surprise that the then FSA had decided not to license or pre-approve financial services products due to a “lack of resources”.

    The FSA head of consumer affairs at that time, Chris Pond said that “product pre-approval would have proved problematic” and that ‘we have stepped away from the idea of saying we will approve products in advance because we do not have the resources to do that and then there are problems with people saying this product is fine”.

    Over a considerable number of years ‘Consumer detriment’ has been seen because the regulator has noted flaws in product design, marketing or understanding of outcome and purpose- and yes you have guessed it, all with the benefit of hindsight.

    Regulation should be about being smart and not wise after the event. It should be about utilising experience when things going wrong to make sure mistakes and failures do not happen twice.

    Those ‘Manufacturers’ of product are in business to make a profit and that profit can be made quite ethically and honestly, but I have an “overwhelming feeling that our regulator just doesn’t understand the markets it purports to regulate”.

    To licence a product as fit for purpose, with that purpose clearly defined, as part of the process is the single most effective consumer benefit a regulator could put in place.

    It is the CAA equivalent of being fit to fly, it is the Food Standards Agency equivalent of safe to eat, it is the VOSA equivalent of saying your car is safe to drive.

    This decision is nothing to do with resource, it is to do with responsibility and who the finger points at when things go wrong.

    We should remember that as Sir Hector pointed out at the TSC hearings if responsibility fell upon the shoulders of those at the FSA, nobody would want to do the job.

    A regulator cannot and should not rely on someone else to do the job, and then get him or her to take the blame when it all ends in tears because they did not have the “resource” to do what was right.

    Some have suggested that the resource needed would result in a huge increase in fees, perhaps the contra view that because products are licenced there would be fewer failures for the FSCS to fund might be more appropriate.

    In any event, the FSA and FCA has never found it difficult to raise money to fund its activities in the past, in fact it just goes to the very banks it regulates to raise the money then bills those it regulates to pay it back.

    I am sure that this will generate a lot of debate, perhaps the justification should read “through being inefficient, incompetent and frightened to take any responsibility whatsoever for the consequences of our own actions we are not going to effect product pre-approval” and so are handing back the keys of responsibility to you.

    Just a thought!

  8. Julian Stevens 7th June 2017 at 5:48 pm

    I may be wrong, but I’d thought the main cause of our skyrocketing FSCS levies to be the FSA’s negligent failure (for which Hector Sants was awarded a knighthood) to prevent regulated firms selling unregulated junk products without any PII cover for such activities.

    Were its GABRIEL system worth a flying fig, were the regulator actually to examine the contents of the returns and then swiftly investigate any admission of selling UCIS (such as demanding proof of relevant PII cover), we wouldn’t all be buckling under the relentlessly increasing FSCS pay-outs.

    As for the perceived inadequacy of most PII policies, who can blame insurers for seeking to protect themselves against today’s standards of advice being applied (by the FCA) to yesterday’s business?

    The issues of future claims for today’s business and insurers unilaterally withdrawing cover at the first whiff of yet another hindsight review by the regulator are thorny indeed. If you’ve paid for cover in respect of what you’re writing this year, you should (provided you maintain reasonable premiums for run-off cover) be able to claim on your PII if a complaint goes against you, however many years in the future that may be.

    We recently switched insurers for our office contents and employer’s liability insurances, but some months later received from our former insurers a request for our Employer Reference Number (ERN ~ apparently allocated by HMRC for every business registering as an employer)and our Employer’s Liability Tracing Office (ELTO) reference.

    Why, we asked? We no longer have a policy with you.

    Apparently, they would still provide cover for an unknown number of years into the future (my file notes don’t record how many) in respect of any claim made by anyone working for me during the year/s in which we held a policy with them. And they don’t even require any run-off premiums. Now that’s interesting isn’t it?

    Anyway, as I’ve written elsewhere, PI insurers won’t even consider changing their practice of withdrawing cover tomorrow in respect of today’s business unless the FCA reinstates a longstop against stale future complaints and undertakes to abandon its established practice of reviewing by hindsight. So that’s the end of that.

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