Sourcing professional indemnity insurance can be one of the toughest tasks advice business owners face, and one of the biggest bills they are hit with too. But what is it really like on the ground now when going through the renewal process?
Money Marketing spoke to the leaders of three advice firms to understand the factors affecting premiums, excesses and coverage across the market, and how the likes of defined benefit transfers and unregulated investments are weighing on underwriters’ minds.
Jason Betteridge, managing director, Sutherland Independent
We’ve just had our PI renewal and it’s a nightmare at the moment. They’re asking about DB transfers and it’s all hung around that whole process. What’s the biggest you’ve done, what’s the smallest and, now even more so, how exactly do you deal with them? Do you take on business where it’s not suitable but the client is insistent? We sent away so much stuff to try and justify to make sure we remained covered. We are absolutely process driven; everything goes through cashflow, and we sent them a huge report with how we do it. We have never had a complaint. The premium has gone from £32,000 to £51,000. Some of that is down to an increase in turnover, so the premium doesn’t worry me too much, but the excess has gone from £5,000 to £25,000, which ultimately impacts our capital adequacy. It’s a big knock-on effect. I’m hearing around Edinburgh about people not getting cover at all. It’s the bigger IFAs not the smaller ones struggling. But some IFAs are still banging every single DB transfer case into Pru funds. Is that good advice? It could have a 20 per cent drop theoretically. We have tried to get extended terms for longer than 12 months as it’s a pain in the backside to go through it again but couldn’t. Some have got 18 months, but if you are looking at acquiring a business or being acquired, the issue is if you have got DB stuff in the background, will the PI insurer touch it? If you are going to carry on with the recurring income you have to take on the liability so I’m almost thinking it’s only consolidators that are going to be able to buy reasonable sized IFAs.
Anna Sofat, managing director, Addidi Wealth
Our last renewal was around November so we’ll be coming up for another soon. Over the past two years it’s definitely been a case where, in areas where there have been claims, it gets harder to get cover for those. Obviously DB transfers are a big one but any unregulated investments are as well. On the whole we have been able to get cover and it’s been okay. At times, we have talked through some of the things with the insurers and explained the process for them. Two to three years ago, they would look at our suitability, and they would say okay, that’s robust, we are okay with that, for example on unregulated investments if we were going to do that. It’s become much more of a box-ticking exercise. There’s definitely less willingness to go outside and do it more on a one-to-one basis. For insistent clients there have been people in the industry who have used that route to take short cuts, so then everyone else is tarred with the same brush; if you are doing this, you are not doing things right. In a way the PI insurers do weigh the better advisers, they charge them less and excesses are less. They trust the process and the quality of advice to be better. But I would really like to see the regulator coming in and giving a bit of a traffic light system. The way the compensation scheme has worked firms have been allowed to go under, start again and the rest of the industry picks up the bill. So I don’t blame the PI insurers but there has to be a better way, both from a consumer protection and from an industry point of view, where you can provide advice quicker and cheaper than under the current scenario.
Carl Lamb, managing director, Almary Green
As a firm we give advice on defined benefit transfers and run a very stringent process that includes both non-contingent charging and cashflow modelling to name but two. We have been with the same PI underwriter for 18 years, so it knows our business backwards. Quite clearly DB is the main focus of its attention right now and we managed to secure 18 months’ worth of cover, which is our normal practice, for roughly the same premium as last time. The only difference is that the excess for DB work has increased from £7,500 to £15,000. We always test the market so another PI broker who thought our process was extremely thorough offered us only 12 months’ worth of cover but with a premium of £100,000. This is the next major issue for people running IFA practices and I would not be surprised if some companies can’t renew their cover at all once the PI underwriters realise the extent of the potential liability facing them. Ultimately, as always, it will end up with the client paying.