Zurich has said it will remain committed to offering property and casualty cover for financial advisers, but is standing by a decision to withdraw the rest of its professional indemnity insurance offerings for IFAs.
The firm says it will retain the limited insurance range for IFAs for the foreseeable future, but will not reverse the decision it made last year to withdraw full PI cover for the retail advice market, with no plans to restart any other coverage.
A Zurich spokesman says the decision was “made in line with our public strategy of focusing on our areas of excellence.”
He says: “We have never been particularly active in the PI space for IFAs, it was a bit of a smaller book. We are focusing on where we excel. Where books are a bit smaller, choosing not to renew is probably the best option.”
When asked if defined benefit transfer risks contributed to its decision to pull PI cover for IFAs, the spokesman said it was “difficult to say exactly that’s why we stopped renewing.”
More than 40 per cent of advisers saw their professional indemnity insurance bills increase at their most recent renewal, Money Marketing research in conjunction with Schroders suggests.
Sixty per cent already believe the cover is too expensive, as advisers express concern that unregulated product claims and DB pension transfers will continue to put upward pressure on excesses.
A senior compliance source tells Money Marketing that several other insurers have also stopped taking on new adviser business and are only taking renewals now, with providers asking additional questions and making additional checks before offering cover.
How many DB transfers have you done?
They suggest that Zurich’s decision may have been motivated by emerging risks such as DB transfers, and that premiums across the market for advisers are going up “quite dramatically”.
Half of advisers have PI renewal periods lasting a year or less, according to the Money Marketing research.
The source says: “Put yourself in their [Zurich’s] shoes; it might be a good choice to walk away. People are starting to ask: how many DB transfers have you done? Maybe people can provide cover for the basics, but not things like DB transfers.”
The FCA recently sent round a data request to advice firms with DB transfer permissions to gain a better understanding of the market.
The questions include topics like contingent charging, and ask firms whether they have changed their transfer processes since the FCA issued a guidance document last January.
The source says PI insurers have started asking firms for their responses to the questionnaire as a basis for deciding on their own coverage. “They’ve got to provide that anyway, so it’s a case of replicating it themselves and putting their badge on it. It’s a good template for the insurers to get an understanding; that makes sense.”
In December 2016, FCA chief executive Andrew Bailey voiced concerns from the regulator that the professional indemnity insurance market was “not working for IFAs”.
However, after further analysis during its Financial Services Compensation Scheme funding review, the FCA came to the conclusion that PI “broadly works well” in the advice profession.
It stopped short of firm intervention in the market over fears that it would cause more insurers to leave, exacerbating the gaps in coverage.
The FCA wrote: “Our engagement suggests that personal investment firms can generally get the level of cover they want. Ninety-four per cent of our sample of personal investment firms told us that there were no products they would like PII to cover that are not generally covered. On average, personal investment firms were either satisfied or very satisfied with their PII.
“Over the past 10 years, of consumer claims made against personal investment firms, 84 per cent by value are met by a combination of PII and the excess. Of the remaining 16 per cent, many will not have been submitted to the insurer.
“The survey indicates that the most frequent reason personal investment firms do not submit a claim to the insurer is that the claim is below the excess level; the largest personal investment firm also told us it does not submit any claims to PII
as a matter of policy.
“This suggests that, for personal investment firms that have not engaged in large-scale mis-selling, PII is working effectively.”