IFAs who have given advice to British Steel Pension Scheme (BSPS) members could face difficulties getting professional indemnity (PI) cover as insurers ask questions about the amount of business they have done with scheme members.
Jamie Newell, managing director of PI broker O3 Insurance Solutions, told New Model Adviser® advisers are being asked three initial questions:
- How many British Steel members has the firm provided advice to?
- What percentage of those members has the firm advised to proceed with a transfer?
- Is the firm continuing to offer advice to British Steel workers?
One source New Model Adviser® spoke to said some insurers have stopped providing cover to advisers who are giving advice to British Steel members.
Other industry figures confirmed to New Model Adviser® that PI insurers were asking advisers whether they have given any advice to BSPS members, after media coverage and MPs on the Work and Pensions Committee drew national attention to transfer advice.
The Financial Conduct Authority (FCA) announced last week it will be collecting data from every firm which holds DB transfer permissions following the British Steel saga.
The FCA is also currently undergoing a review of the PI insurance market, which it described as 'not reliably performing', as part of its review of Financial Services Compensation Scheme (FSCS) funding.
Keith Richards, chief executive of the Personal Finance Society (PFS), said there is an inherent issue with the way PI insurance works.
‘PI insurance is an annually renewable contract so if a claim occurs in the year of insurance it works fine,’ he said.
‘But where PI insurers spot trends of higher risks such as DB transfers then they have the option to de-risk themselves by removing cover or increasing excesses at renewal. That was one of the reasons we have seen the failure of past advice firms with the liability of those firms then passed to the FSCS and it further highlights why PI doesn’t work particularly well for the risks associated with long-term financial advice.’
Richards added the latest review of DB transfer advice by the regulator is not a ‘surprise’.
‘What we are now seeing is the unintended consequences of what [pension freedoms] was a politically driven decision without any consultation of the market or the regulator or indeed anyone,’ he said. ‘Ultimately whenever there is a spike in business [in this case DB transfers] it will be the responsibility of the regulator to undertake a review of those activities.’
Russell Facer, managing director of ThreeSixty, said: ‘PI insurers generally react to news so I would imagine they would want to know if any of their firms, particularly if they are renewing now, have been in that marketplace [DB transfers].’
He added the firms who have struggled to get PI insurance cover have been the ones where DB transfers represents a large proportion of their overall business.
New Model Adviser® contacted Liberty Speciality Markets and AmTrust, two of the major PI insurers in the market, but they did not respond to our questions.