In its recent quarterly consultation paper, the FSA revealed it will increase minimum PI cover limits by 12 per cent from euro1.5m to euro1.68m for all new and renewed policies from March 1, 2009.
Managing director Neil Pointon says the rise, coupled with weakening sterling, will force insurers to pass additional costs on to advisers.
He says: “Increases due to the weak pound have been absorbed by insurers, due to the soft market conditions, but these have now reached around 30 per cent from bottom to top of the exchange rate fluctuations since the insurance mediation directive came into force. If the pound remains weak against the euro, the change due next March will mean these limits may have had to increase by over 40 per cent. In a flat market, I would have expected a premium rise of around 15-20 per cent to cover this cost.
“If the market was to harden as a result of the current economic turmoil, this figure could easily double.”
The FSA says that the IMD requires PI minimum indemnity limits to be adjusted in line with movements of the European index of consumer prices every five years.