IFA 2016 PI insurance market investigation

Protean Risk have published the results of an independent survey of the Professional Indemnity (PI) Insurance market for Independent Financial Advisers (IFAs). PI insurance is a compulsory purchase for IFAs and one of their single largest business expenses. It has far-reaching implications beyond just the cost of the premium – exclusions and excesses can have a significant impact on the profitability and competitiveness of the firm.

In recent years many IFAs have found the PI insurance market particularly challenging with premiums and policy excesses increasing. We, therefore, invited Underwriters involved in IFA PI insurance to provide their personal opinion about the market outlook; to share their insights about emerging claims trends; and to identify which risk management improvements encouraged them to provide the best PI insurance terms.

Nathan Sewell, Chief Executive of Protean Risk explains “As a specialist PI broker for the sector, one of our main goals is to help IFAs understand how they can better protect themselves from PI claims, make more informed risk management investment decisions, and secure the most competitive insurance premiums.”

Key survey findings

1. Claims frequency remains a key concern for underwriters – the impact of the financial crisis is finally receding and increased risk controls within IFAs are seen as a positive factor in reducing claims. On the other hand, an increasingly litigious environment, pension freedoms and the potential of further thematic reviews by the FCA were reasons that many of the respondents expected that there will be an increase in notifications over the next 12 months.
2. The need to be aware of the impact of dealing with certain activities and ‘insistent clients’ – PI premium rates are sensitive to business activities. Certain business activities are prime focal points for underwriters. It is worth taking the time to understand how certain activities impact your premium, as these may actually prove unprofitable.
3. The value of strong risk management procedures remains high – Compliance structure, increased adviser oversight and file checking are high on the underwriter’s checklist.
4. New PI insurer entrants expected – The question is whether this new capacity will target clean, low risk firms or perhaps seek to attract firms undertaking higher risk activities, but that demonstrate strong risk management systems.
5. Growing trend for non-renewal – This has significant implications for IFA firms, especially those engaged in higher risk activities or with poor claims history and for those using single insurer market option brokers. Through taking the time to build relationships and possibly meeting a potential new insurer, IFAs should be able to take comfort that they have credible options and will be in the position to take advantage of any new insurance market capacity.