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The time is now for action on PI cover

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

The professional indemnity insurance market is broken and is failing advisers. There is a groundswell of opinion building to this effect, regardless of the various ways the statement has been said and the various policymakers saying it, including Financial Services Compensation Scheme boss Mark Neale and FCA chief executive Andrew Bailey. If two senior regulators are singing from the same hymn sheet, it is a clear sign that action needs to be taken.

The imminent FSCS funding review, expected by the end of this year alongside a review of PI cover tabled for early 2017, presents a golden opportunity to put this right.

There are a number of increasingly urgent issues these twin reviews need to address. Firstly, the interaction between FSCS liabilities and PI cover, and the shortfall between the latter and the former.

A failing PI market feeds through to higher FSCS costs for everyone. Advisers are frankly fed up of shelling out increasingly large sums for levies and PI insurance, when the two systems show little signs of actually working in practice.

Secondly, there is the prospect of industry-wide minimum standard wording for PI cover to clarify what the policy does and does not cover. Thirdly, there is the option of combining FSCS and PI bills, a proposal which has been met with cynicism and enthusiasm in equal measure. It is positive that these ideas and concerns are coming to the fore and are being discussed.

As Money Marketing reports this week, the need for PI reform has never been greater. This is typified by a recent High Court judgment, which ruled in favour of the PI insurer and against around 100 investors looking for redress for being missold unregulated investments. The investor losses are substantial at more than £20m. And the advice firm behind it? None other than Burns Anderson, with this particular claim thought to be the one that pushed parent company Honister Capital into administration back in 2012.

Without going into the nuances of the case, the claim partly fell down on the basis the investors were in what the judge described as a catch- 22 situation. Whatever way you cut it, the PI policy taken out by Burns Anderson would not have benefitted the clients.

These investors challenged the system and lost. It is now time for the advice profession to pick up the PI baton and run with it.

Natalie Holt is editor of Money Marketing

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Comments

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  1. Problem is that everyone has different agenda- FCA. FOS, advisors, compliance teams, FSCS, PI and courts- not surprising we cant figure out how to protect consumers while still running profitable businesses. Advice practices have to balance their care to the customer against running or working in a commercial environment- no-one else has to so decisions can be in made in isolation and without repercussions. FCSC is purely consumer protection orientated- yet PI Insurers are completely the opposite so there is inevitably a gap. I don’t favour product levies as that just limits the advice given even where it could have been in the customers interests, advice about a SIPP can be just as valid as a PPP; DB transfers may absolutely be in the interests of the customer where a pension switch may be only marginal. I think the FCA should regulate more products, taxation of products simpler, introduction of decent long-stop position, FCSC should be single point of insurance for complaints and insolvencies, should be mandatory for firms to pay levies and some run-off cover for long-stop period, levies should be based on turnover not products, should be concept of no claims discount so the good benefit and the poor pay more, FCSC then seeks reinsurance from PI insurers who are the one-step away from being involved in the decision for redress- it seems to me a jigsaw of solutions is required rather than a single focus- but seriously- if solving this was easy it would have already happened.

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