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.
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.”
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.