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Professional indemnity insurers rein in on risky IFA business
by Michelle Abrego on Jan 13, 2012 at 11:07
The fallout from recent investment failures has resulted in professional indemnity insurers placing curbs on the cover they offer IFAs and even shunning their business altogether
Advisers have been warned the bill resulting from the collapse of Keydata and the failure of the Arch Cru funds could stretch beyond punishing Financial Services Compensation Scheme (FSCS) levies to include hikes in professional indemnity (PI) insurance premiums.
Insurers have reacted swiftly to the action, which is understood to mark only the start of the FSCS’s attempt to recoup compensation paid to Keydata investors. Some have pointed to exclusions that mean they will not pay out for such cases, while others have stopped writing new IFA business altogether.
A letter seen by New Model Adviser® from a PI insurer to its adviser client highlighted the exclusions that exist in policies and how advisers may not be covered for certain sales, such as those of Keydata products or Arch Cru funds, and for costs relating to the FSCS’s legal pursuit. It states that exclusions related
to life settlement funds and insolvency mean it would not pay out if the FSCS’s claim against the IFA was successful.
‘It is clear that at the very least, SLS’s insolvency gave rise to the claims made by FSCS; it therefore follows that the insolvency exclusion also excludes the claim being made,’ the letter states. ‘Given the circumstances, we have no doubt that these exclusions apply and therefore the claims made by Herbert Smith on behalf of the FSCS are not covered pursuant to the terms and conditions of the policy referred to above. We appreciate that this must be disappointing to you, but the exclusions clearly apply on this occasion.’
Some PI insurers, such as QBE Insurance Group, have gone further, deciding to stop writing new IFA business.
Neil Pointon (pictured), director of retail at brokers Howden Insurance, said difficult economic conditions and the impact of failed investments were combining to affect the cover PI insurers were offering IFAs. ‘We might be on the brink of a hardening market,’ he said.
Changes in the small print
Keith Churchouse, director of Guildford-based Chapters Financial, said although PI premiums had not increased dramatically over the past few years, providers had started to add more exclusions and caveats to policies.
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