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Severn warns Newcob could push up PI rates

Former FSA head of retail inv-estment David Severn says the move to principle-based reg-ulation could lead to increasing professional indemnity insurance rates for advisers.

Severn, who is also a former director general of Aifa, believes that claim management firms are hoping that the introduction of Newcob will give them increased scope to argue that advisers have not dealt fairly with aggrieved consumers.

He says the effect could be to raise PI cover at least until insurers are in a position to assess Newcob’s impact on claims against firms.

Collegiate legal director Martin Archer says the move to principles is making insurers “jumpy” and suggests that the uncertainty surrounding the new regime could lead to an increase in premiums.

Severn says concerns over possible increases mean that the FSA should give more attention to pressing the EU to make progress on its promised review of the proportionality of levels of PI cover.

He says: “I am told that claimhandling firms are looking around for what to do next and a regime based on prin-ciples gives them far more scope to argue with an IFA firm over whether it has treated a client fairly.”

Archer says: “The move to principles introduces uncertainty to the market and that is something that makes insurers jumpy. There is a premium for uncertainty, especially in the IFA sector, and with the ease we have seen of applying hindsight, insurers will look at loading this risk on to premiums.”

PYV chief executive Neil Pointon says: “There is no doubt that if someone wants to stir up trouble, it could be easier under principle-based regulation but, on the other side of the coin, firms might be able to defend themselves better under principles rather than prescription.”

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