FCA raise concerns about IFA PI cover
The FCA has warned advisers that they must not rely on PI insurance that excludes areas including DB pension transfers or has a high excess.
The regulator clearly intends to reduce the number of IFA firms giving DB advice and is utilising the restricted PI market to assist in clearing the decks. Issues arise when a firm cannot get cover, or has a restriction in place for their historic work even if they intend on giving up their DB permissions. It is very important that firms approaching renewal are well prepared and well informed into have the best chance of getting cover.
Some key questions you should consider:
- Is your PI Insurer still underwriting IFAs? If so have they had any changes in risk appetite since your last renewal that may affect your firm?
- What information should you be providing in order to support your submission? Details of processes, lists of transfers, and audits or file checks etc.
- How well presented is your proposal form? This is the first thing an insurer sees so it should be neat, accurately completed and concise. A covering letter explaining the ethos of the firm, giving more information on any questions in the form and discussing any developments adds value.
- What is your route to the insurer? Are you dealing with a specialist broker who understands the IFA PI market and has direct access to insurers?
- How active and experienced is your insurer in the IFA PI market. There have been a number of insurers dipping in and out over the years leaving firms without renewal terms, or worse without claims being paid. Your decision making should not be based on price alone.
- Set a timeframe with enough room to assess your renewal documentation and any implications to changing terms.
What to Look out for in 2020
With the restricted capacity and limited appetite in the PII market there are some key features to look out for in 2020:
- Increased excesses. How will these affect your firm, not just in terms of risk exposure but taking account of capital adequacy implications? If you have a choice of higher and lower excesses the lower is always recommended.
- Cover exclusions. Unfortunately many firms are facing exclusions, namely for their DB advice. Understand what the implications are to your firm.
Some key considerations when facing cover exclusions:
- Is the exclusion for advice given to date and going forward? If this is the case it is likely that not only will your ability to give this advice going forward be impacted but you will also carry an exposure should any claims arise from past advice. Review your capital resource implications? It is advisable to consult a third party compliance consultant to clarify what the implications of any exclusions are.
- Although there can be significant premium differences, it is not advisable to take any exclusions should you have options with or without cover. Once you have an exclusion it is harder to find cover for this activity at a later date.
- Inner Limits of Indemnity. Be aware of inner limits which are becoming increasingly common in IFA PI policies. This is where you may have the full limit for your firm but an inner limit (for example £250,000 or £500,000) for DB transfers. This is not deemed to be suitable cover by the regulator and in many situations firms have been asked to give up their relevant permissions if they cannot increase these inner limits.
- Restrictions. Some insurers place restrictions on past cases you've dealt with. Understand what these restrictions are and ensure that you have take appropriate measures to work within your policy limitations in the future.