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IFAs facing renewed anquish in PI crisis

Many IFAs feel they have been fighting their own silent battle since

the professional indemnity insurance market fell apart last autumn.

The situation is so grim that hundreds of IFAs which have resolutely

maintained their independence for years may finally be persuaded to

join a network to obtain cover. But will it be that easy?

Although the LIA has called for the FSA to extend a PI waiver to all

IFA firms with a turnover below £500,000, according to the FSA&#39s

own statistics there are still around 400 firms facing a PI black


Networks are predicting that April 1 – the next PI renewal date –

will force the industry to recognise the extent of the problem. But

even those small IFA firms that are willing to join a network may be

unable to match the necessary criteria.

Misys uses five tests to assess applicants based on the firm&#39s

complaints history, the length of time it has been practising,

performance and productivity, the type of business it has conducted

and the level of qualifications held by its advisers.

Misys says it will not close the door on good firms but will not

“take on poor risks”. Head of communications Paul Charles says:

“April 1 will be a wake-up call for all IFAs.”

National Millfield assesses potential new recruits based on their

business plan but is only interested in firms that want to grow their

turnover significantly over the next three years.

Although chief executive Paul Tebbutt does not believe the April

renewal date will see IFAs queuing round the block to sign up with

networks, he says: “I seriously think that, for many, the penny does

not drop until they receive their renewal notices. Many will be left

out in the cold.”

The PI problem took many IFA firms completely unaware last November.

A number of PI brokers which closed to new business at the end of the

summer failed to inform their clients that they would be unable to

renew their policies until the last two weeks in October, leaving

them with a last-minute hunt for cover.

Some advisers feel they have been pushed to the edge by the problem.

Eric Rawlins Life and Pensions principal Caroline Speirs has been

forced to make a memberof staff redundant, bringing her down to three

RIs, and taken six weeks off work due to stress.

Speirs says: “We have finally been able to get cover by approaching a

broker direct but are now paying through the nose for it, with a 500

per cent increase on last year&#39s premiums and an excess that is more

than 10 per cent of our turnover. The excess is horrendous and still

currently non-compliant.”

Chris Howell is one of the many advisers who have been forced to join

a network. Torquay-based Seaways Insurance, which has eight RIs, has

been operating independently for more than 15 years. After twice

trawling through the FSA&#39s list of more than 30 PI brokers, Howell

realised there were only a select few which would consider his


Howell says: “In my opinion, the FSA has caused this problem by

prevaricating. Some will go to the wall and some will go to the

networks. But I have enormous sympathy with the brokers – they cannot

and will not insure an unknown risk and they cannot allow for a

regulator that introduces retrospective rulings.

“If I had wanted to join a network, I would have done so 15 years ago

when I set up my business. But we are lucky in that we have been in a

position to pick and choose which network we go for.”

From the reasons that brokers give for declining IFA applications,

Howell believes it is possible to build up a profile of the “PI

leper” – the small to medium-sized firm with a turnover of less than

£500,000 that has done a large amount of pension business.

But one IFA who would rather face closure than sign with another

network is York Financial Management director Graham Carver. His firm

has only been running since 2001 and has no skeletons in its

cupboard. Carver has been particularly frustrated by the FSA&#39s

inability to tell him what level of capital he will need to cover his

liabilities if he succeeds in gaining a waiver.

Carver says: “I left a network to set up on my own and I don&#39t want

to have to shut up shop but the current market may make this the only


Advisers about to join networks could be jumping from the frying pan

into the fire. Although networks have escaped the PI crisis to a

certain extent so far by being able to buy cover for 24 months, they

too could find themselves struggling to find cover when their renewal

dates come round again.


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