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Structured products: Advisers seek solution to soaring PI costs
by Rachael Revesz on Nov 19, 2012 at 10:45
As advisers using structured products face rising PI insurance premiums or the exclusion of the asset class from cover, some are frustrated with insurers while others, like David Crozier (pictured) want the FSA to act.
Rising professional indemnity (PI) insurance premiums for advisers recommending structured products have been adding strain to IFA businesses already facing the challenges of preparing for the retail distribution review (RDR), and could push some towards restricted status post-RDR.
Julian Davies, founder of Bridgend-based Davies Financial, faced an increase of £11,300 to his firm’s annual PI insurance premium, and Harry Moore, director of Bedford-based Harry Moore Independent Financial Advisors, also faced rising premiums.
Davies decided to shop around and went to SimplyBiz, which was offering a premium of £5,600, but the cover excluded structured products.
‘[I was told they classed structured products] as high-risk business and were not willing to cover any liabilities,’ he said. ‘The only structured products we have used are mainstream ones with companies such as Legal & General, Morgan Stanley, Cater Allen, Investec and Royal Bank of Scotland, none of which have ever failed. In fact, one recently matured, with a substantial gain being paid out to the client.’
Threat to IFA businesses
Davies said by excluding areas of the market and hiking up premiums, PI insurers were putting firms like his in a precarious position. It was high time they stopped dictating the terms of business, he said.
‘We can’t simply unwrite any business already written and I feel it is grossly unfair of a PI company to decide it won’t provide cover for a particular type of business,’ he said. ‘Perhaps an alternative would be for PI insurance to be eradicated altogether [and replaced by an] alternative, government-run scheme, to which all practices pay a fixed amount based on percentage of turnover.’
Moore, who sometimes uses structured products, said that he had noticed his premiums rising. He said that his insurer would price match if he shopped around for a better deal.
‘I’m fairly certain a lot of the new measures [and rising premiums] are driven by fear; fear of repercussions,’ he said. ‘Intermediaries’ costs are going up with PI cover. Perhaps product providers have created the environment for the sale to have gone wrong. It’s not necessarily the advisers’ fault but sometimes we are picking up the tab.’
Blame it on the risk curve
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What others are saying
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- Central Financial Planning
- Navigator Financial Planning
- Institute of Financial Planning