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PI to soar after Keydata clawback

Advisers’ professional indemnity insurance premiums will skyrocket if insurers pay out for Financial Services Compensation Scheme claims against Keydata distributors, according to Howden Insurance Brokers.

Law firm Herbert Smith has written to Keydata distributors on behalf of the FSCS to begin the process of recouping compensation paid to Keydata investors.

Howden director of retail Neil Pointon says: “I would estimate the total professional indemnity premium on an annual basis for the UK IFA world is approximately £40m. If insurers were to accept the claims in relation to Keydata, it would effectively swamp any provisions they have made and I would expect PI availability for IFAs to be much harder to come by and rates to increase dramatically.”

Pointon says if insurers reject the claims, firms could be pushed out of business, with claims against them being passed back to the FSCS.

He says: “PI insurance is not there as a product guarantee. It is there to cover negligence, errors and omissions. Just because the FSCS has seen fit to make these payments does not mean that PI underwriters will follow suit.”

Some PI policies exclude claims which involve suspended or illiquid funds. IFAs who have received an FSCS letter are advised to contact their PI insurer immediately.

Collegiate Management Services head of underwriting Richard Turnbull says: “A lot of policies previously had an insolvency exclusion which would have excluded Keydata but that is not so prevalent these days. Advisers will need to check their policies to see whether they have cover in place.”

Baronworth Investment Services director Colin Jackson says: “If you are an IFA that has never dealt with Keydata, it is grossly unfair that there could be PI rises.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. What about the group PI policies with networks,do they get caught up in this?

  2. What if you have bought a client portfolio but didn’t actually make the sale?
    What if you have considered ‘self insuring’?

  3. Is there ever any good news for IFA’s?

  4. Whilst I have no doubt the PI market will ‘harden’ over the next few years, to reflect these recent failures, it will become increasingly important for individual firms to demonstrate they are a good risk. This will mean showing their insurer they have robust systems and processes in place for the delivery of suitable advice, along with properly qualified people. Of course if you have been selling Keydata products and your PI insurer has to pay out for your negligence, getting cover in the future at any sort of realistic price seems very unlikely.

  5. Dont you think the advisers who used key data believed they were giving suitable advice martin?
    Or do you believe that, unlike you, everyone else is out to do their clients a disservice?

  6. I remember when this last happened about 8 years ago, some advisers just could not get any cover. Glad I joined 2Plan as they take care of all this for me, great place to be just now.

  7. A little surprised to see a quote from Mr. Jackson on this article.

    I have on file a Moneymarketing Broker Review of Keydata’s Secure Income Bond with the heading “Low risk and prospect of 7.5% returns”.

    Broker reviewing that product is a Colin Jackson of Baronworth. Scored it 9/10…

  8. @Anonymous | 20 Oct 2011 4:20 pm

    I’m sure that some advisers who sold Keydata did so with the best interests of their clients in mind, and will have no problem demonstrating the suitability of the recommendation. Having sold Keydata does not make you a ‘bad’ adviser; recommending Keydata without being able to demonstrate the suitability of your recommendation might.

  9. Martin
    I cannot believe you said this!
    Cast your mind back to the many times you have considered including what turned out to be ‘less than good ‘advice’.
    Can you honestly say you never considered them or for that matter actually used them??
    I think not!

  10. 10 years of service for a rural community and never had so much as a complaint. I am sick of attending events and meeting arseholes acting like big shots with ingenius new stragegies for improved gains.
    Increased personal accountability and a complete history, including years no claims, is the only fair way to assess this. I wonder how much of these lost funds has found its way to the benefit regulators and insurers in the first place.

  11. I assume that the FSA/SFO are still investigating who stole the life policies in the first place? Perhaps the FSCS should hold off shooting the messengers until the real culprits are found and brought to account.

  12. No Linda
    It is easier to shoot the messengers.

    Not bothering to answer anon @ 4.35 Martin
    Thats not like you.

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