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Has PI cover ceased to be?

Those of you around the apocryphal average age of the IFA will no doubt recall the Monty Python gag involving the Spanish Inquisition. As I recall, the punch line was: “No one expects the Spanish Inquisition.” In the same vein, I am sure not many expected the arrival of a consultation paper on professional indemnity insurance but arrive it has.

In due course, IFAs will in a position to ask questions directly of the team responsible for this process of consultation. This allows us to take part in the process verbally, which is a welcome initiative from the FSA.

Please do not fail to take advantage of this opportunity to make your point and understand the issues faced by the regulator handling a problem that is historic rather than of its own making.

I say historic as this issue dates back to the pension review, where previously acceptable advice and processes were determined to be defective.

Defining misselling by using hindsight has no place in a well regulated market and it is the definition of misselling which will challenge the regulator in a way that no other issue is likely to do.

Now that we are in consultation mode for professional indemnity, we need to ensure that the statistics on which any conclusions are based are accurate and reflect the true position. The importance of this cannot be underestimated.

An important part of the consultation concerns capital adequacy although I believe that it focuses on this from too narrow a viewpoint, concerning itself with the concept of the big firm being able to opt out of cover thorough recognition of its higher level of capital adequacy.

Lest we forget, the EU also has an interest in capital adequacy. This was first brought to our attention by Garry Heath, who promptly recognised the conflict between the European market and the UK.

The Europeans favour an increase in the current level or, in the worst-case scenario, a move to this level of adequacy being per adviser and not per firm.

Having had a fair bit of contact with fellow advisers in other EU countries, they too have issues with some of these changes, as most of the proposed alterations seem to primarily favour the banks. Familiar?

It is also true to say that some of these proposals would simply reduce choice for the consumer and, more important, probably reduce quality at the same time.

We do not operate in a vacuum. Neither the IFA community nor the FSA can ignore what is going on in Brussels.

What we need is a solution that will last and allow us to get on with what we do best – giving advice and not broking professional indemnity insurance.

Returning to Monty Python, we need to ensure that professional indemnity insurance is effective and not the equivalent of a dead parrot.

To overcome the problems we currently face, we need to ensure that we take part in the debate looking forward and not to the past.

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