An increase in the maximum award from the Financial Ombudsman Service could put increase pressure on professional indemnity insurance costs, it has been warned.
The current FOS limit is £150,000 – which can be insufficient to cover pensions complaints in particular – with proposals to increase this to £350,000 from April next year.
The deadline for the consultation closed today, and both Royal London and law firm RPC have claimed that firms could be forced out of the market if greater compensation awards mean PI bills rise further.
Royal London notes that the FCA estimates an extra £77m in PI bills could be needed across all firms falling under FOS, and argues that advisers could have to increase fees on the back of this.
Royal London policy director Steve Webb says: “There is a real risk that raising the FOS limit could lead some PI insurers to withdraw altogether and others to hike their prices. It is already proving difficult for advisers to obtain affordable cover and this could make the situation much worse. If the result is that fewer clients can obtain affordable advice then it is hard to see how consumers will benefit.”
In it consultation, the FCA says there is a shortfall of £113m between compensation recommended and compensation paid because of the award limit.
However, RPC says many business already consider PI “prohibitively expensive”.
It adds: “More claims against financial services firms, for larger amounts, would mean even more expensive PI nsurance. There are already only a limited range of insurers that will provide PI cover to financial services firms.
“Unaffordable PI insurance could mean that more financial services firms are kept out of the market, which would decrease competition at the detriment of consumers.”