Mortgage advisers face being unable to meet the Financial Services Authority’s (FSA) requirements on professional indemnity (PI), warned Reg Brown, a former president of the Chartered Insurance Institute.
Mr Brown spoke at a Society of Financial Advisers seminar on the crisis in IFA PI insurance, held at the Chartered Insurance Institute on 16 October. Many IFAs face being unable to trade because they cannot source the FSA’s minimum levels of PI cover in the current hard market.
Brown warned other intermediaries could face the same problem when the FSA takes over regulation in 2004. He said: ‘How can insurance companies put a price on what the regulator may rule next? I am not a fan of compulsory insurance. Insurance is unpredictable, it is full of hot and cold, fat and thin. What does a regulator do when the compulsory product is not available?’
The IFAs accepted their market has had problems, but said the FSA’s inflexible stance in the hard market means that even good risks cannot get adequate cover. The IFAs were extremely disappointed the FSA failed to send a representative to the seminar as planned.
As one delegate said: ‘The FSA is the villain in this pantomime. I am appalled it has not sent any one along ‘ they are the source of most of the problems.’
IFAs are now considering other means of meeting the PI requirements, including self-insuring and setting up a mutual. As Fay Goddard, director of policy and technical services at the Association of Independent Financial Advisers (AIFA), said: ‘We looked at setting up a mutual when the AIFA was set up three years ago. We rejected it due to the cost of administration and because we also feared it would end up a pool of bad risks. It is back on the table for discussion after the significant deterioration of the market over the last three years.’