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Soaring PI cover is putting IFAs in critical condition

You many be interested in my professional indemnity story.

I have been trading as an IFA in Maidstone since 1976. We provide a bespoke service to our clients, most of whom are local but, over time, our clientele have extended to all parts of the UK and abroad. We mainly specialise in investment and pension planning in retirement and operate on either a fee or commission basis.

I am the principal Adviser with three admin staff dealing with the 3,000 plus clients.

Following the aftermath of the pension review, our PI insurance settled down to £4,500 a year with excesses of £2,500 in each and every case.

Over the last few years, we have recommended a portfolio of zeros to 17 clients using the BFS managed portfolio model as opposed to recommending specific zeros.

On the approach to our PI renewal in June 2002, I wrote to the underwriters, advising them that I had 17 zero cases and had received a number of calls from clients who were concerned about the situation that they were reading in the financial press.

I had not received any complaints at that stage but I wrote with a list of the clients names saying that these are circumstances which could give rise to a claim, putting them on notice.

The underwriters rejected the blanket notification and offered renewal terms of annual premium of £30,000 with excess of £15,000

This would include the zero clients if indeed they turned into claims.

After nearly two months, I eventually rebroked the PI cover on the following basis – annual premium £22,000 with excess of £9,000,

This specifically excludes the 17 zero cases and two complaint cases that had arisen during the renewal process.

I am therefore left in the situation where, as a provisional IFA firm, my expenses have rocketed, turnover is down and I have substantially reduced cover almost on a self-insured basis at a considerably increased cost.

A number of the zero clients are now complaining following the recent BBC Money Programme and I have a fight on my hands to persuade the old PI underwriters that they have a responsibility to cover these under the old policy as I dutifully notified them of circumstances which could give rise to a claim during that policy year.

The situation for small to medium-sized IFAs is now acute and I believe there has to be an industrywide solution before we are all forced out of business completely.

I trust that my case and others will help to put across the message to the regulators.

Mathews Smith

Maidstone, Kent

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