Much is made of the theory of efficient markets and how the system grinds to a halt if both buyers and sellers cannot be matched together.
Nowhere has this been more apparent than with the moribund stockmarket conditions we have seen in recent times and the continuing uncertainties that are still out there.
One other market that has been much in the news over the summer months, and continues to dominate the conference circuit, is that of professional indemnity cover.
While it is under review by the FSA, that is not helping those organisations which are trading without cover or those who have cover but for all intents and purposes are self-insured due to the extreme levels of excess which also coincide with exorbitant premium levels.
Many in the farming community are struggling to rebuild their businesses post foot and mouth but for the IFA community we now have our own foot and mouth crisis in the shape of the professional indemnity market – or more precisely the lack of market – which is placing severe strains across our sector.
The situation is rather like having a field full of sheep ready to be sent to market only to have a blanket restriction placed upon their movement due to the disease erupting on the adjoining farm. The business is placed in turmoil because overnight you have an unsaleable product but are left with the fixed costs of continuing to run the business and keeping the animals in good order.
IFAs are forced to have professional indemnity cover as a result of regulation and there is at present no way around this. Any sensibly run organisation would wish to have such protection in place, particularly in an increasingly litigious society.
However, when there is virtually no choice within the market, the near monopoly position appears to be being abused safe in the knowledge that whatever the level of premium, cover has to be purchased.
Many may remember the furore when compulsory PI was first mooted by Fimbra and the original intention of having an industrywide compulsory scheme. At the time the decision was taken that PI should become compulsory but that rather than having an industrywide scheme, there would be no restrictions across the whole market to allow for freedom of choice as long as the prescribed terms were adhered to.
The very strong case made at that time against an industrywide scheme focused on the dangers of a monopoly situation, which regrettably is where we now find ourselves.
For those in the run up to the next renewal, be warned in advance and prepare yourselves for a very lengthy application and for those in networks, the issue of PI is not a lame excuse for an increase in fees.
We have much to thank Aifa for in its effective lobbying on our behalf and I know that PI is an issue that it has been grappling with. It does seem to me that individual organisations should take it upon themselves to enter the fray on this subject.
In particular, they should make individual approaches to anyone who may be in a position to influence a change in the present rules at the same time as moving this item up the agenda at the FSA. In this way, the scale of the issue will be made clear and the problems it is causing will be highlighted.
Frankly, with exorbitant premium levels and high levels of excess, the reality is that for the majority who are running sensible businesses, there is no PI cover and if you are in effect self-insuring, then surely it would be better to do away with the requirement for PI altogether and use the money towards a sinking fund approach, perhaps as an extension to the FSCS.
You can be sure that if compulsory cover were not required, then we would und-oubtedly see a fairly swift reduction of rates down to acceptable commercial levels. There are, of course, other solutions that I am sure could be workable. The debate needs to take place – and quickly.
Nick Conyers is a director of Pearson Jones