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MPs urge FSA to act on mutual PI system

Support for a mutual professional indemnity insurance fund for IFAs is growing after FSA chairman Howard Davies told the Treasury select committee there are arguments for such a system.

Davies&#39 comments come with select committee member Labour MP Jim Cousins urging the FSA to champion such a scheme, warning that, unless it is implemented, the sector will disappear as it cannot afford escalating PI premiums.

Cousins predicts that without the lead of the regulator supported by providers, there will be no future for IFAs.

Answering questions from the select committee last week, Davies said he has discussed with the Government the prospect of a review of PI.

But he said the FSA&#39s analysis indicates IFAs have seen premium increases no greater than other groups such as lawyers or accountants.

Davies told MPs there have been indications that one or two insurers who were going to withdraw from the market have changed their minds following the FSA&#39s temporary move to change the definitions of compliant cover three weeks ago.

But PI brokers say they have seen no such evidence and wonder which insurers Davies is referring to, with PI broker Dickson Manchester saying the market has not reacted at all to the FSA&#39s move at the beginning of November.

Cousins says he plans to write to the FSA immediately and ascertain exactly what changes have occurred in the market since the changes.

Davies said: “Our analysis would suggest the case for IFAs is not any greater than the cases for other groups such as lawyers or accountants. There is an argument for some sort of industrywide mutual fund for IFAs.”

Cousins says: “The lack of such a vehicle could bring down the whole IFA sector and this whole protracted debate about polarisation could be proved irrelevant.”

Aifa director general Paul Smee says: “The industry cannot sustain a mutual on its own. We need the support of providers which is one of Aifa&#39s urgent objectives.”

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