The Personal Investment Management & Financial Advice Association has called the lack of affordable Professional Indemnity Insurance an “existential threat” to the advice industry, after research found less than one in five (17%) advisers and wealth managers has confidence in being able to secure affordable insurance.
In a survey of 84 member firms, over half (56%) reported their PII contained significant restrictions, including on historic advice related to defined benefit transfers, leaving firms without cover for advice given before the insurance policy began.
According to PIMFA, some members felt like they were being “penalised twice” with increases in both the Financial Services Compensation Scheme levy and PI premiums. Over a quarter (26%) of firms reported that their PII premiums had jumped by more than 100% in the last five years, while some firms said they had been unable to secure cover because their premiums had risen so much, forcing them to keep higher capital reserves.
Meanwhile, 45% said their FSCS levy bill had also increased more than 100% in the last five years and more than four fifths (82%) of members said that FSCS costs now accounted for at least 20% of their outgoings, excluding payroll and accommodation costs.
Tim Fassam, director of government relations and policy, PIMFA, said: “PIMFA believes that the inability of advice firms to afford and therefore secure comprehensive Professional Indemnity Insurance represents a genuine existential threat to the industry. Advisers are increasingly concerned about their ability to gain comprehensive cover, which not only harms their ability to operate in the future but also represents a barrier to new entrants in the market.
“We are particularly concerned about the absence of comprehensive cover for advisers. This only feeds into concerns we have about businesses failing as a result of claims and falling onto the FSCS as a result.”
PIMFA said that the increase in premiums over the past five years had been driven by the unintended consequences of policy decisions and concerns around supervision and urged Government, regulators and the industry to work together to ensure that policy is designed in a way that allows a “healthy and diverse market to thrive.”
