Financial Services Compensation Scheme chief executive Mark Neale has hit out at advisers’ professional indemnity insurance as being unfit for purpose and called on PI insurers to reveal how they decide what premiums to charge.
Speaking at our flagship Money Marketing Interactive adviser conference in London last week, Neale criticised the way the current PI model for advisers works in practice.
He said: “PI cover is an interesting issue and one we have flagged repeatedly because many of the firms that come to us do so because their professional indemnity insurance is not fit for purpose. I would be up for understanding how PI insurers make their own judgements about the premium they charge advisers.”
The Financial Advice Market Review recommended the FCA carry out a review of the availability of PI cover for smaller advice firms once it has completed its review into the FSCS funding model, which is underway.
Neale added: “A bigger problem is the lack of fitness for purpose of many PI policies so firms can’t absorb the liabilities that come to them. That tips them into insolvency and they become a charge on us and all of you [advisers].”
He says one way of incorporating risk into the FSCS levy model would be to examine PI insurance.
A product levy has already been ruled out as a potential funding model for the FSCS but risk-based and “smoothing mechanism” approaches were raised as two potential solutions at an industry roundtable last week.
Money Marketing understands adviser trade body Libertatem is partnering with broker Lockton to provide a PI facility for its members.