The Financial Services Authority (FSA) has helped ease the pressure on financial advisers seeking professional indemnity (PI) insurance by modifying its rules to make the market more attractive to underwriters.
The changes affect five clauses relating to the manner in which IFAs will be charged for mis-selling; compliance rules that can affect a client contract; legal defence costs; the discovery period of a claim; and an updated war and terrorism inclusion.
PI premiums have increased by an average of 50% this year. Although the FSA ruled this as not out of line with increases in other insurance markets, it noted that underwriters in the PI market were becoming stricter.
David Kenmir, director of investment firms division, at the FSA, said: ‘There are signs the professional indemnity insurance market is becoming harder, and 1,200 IFAs are due to renew their mandatory cover in November, which may put stress on the market in the short term. Granting this modification is a good regulatory solution. The underwriters have indicated that these changes will encourage them to write more business, which in turn will increase the availability of PI insurance cover for IFAs.’
The action was taken following complaints from advisers over how they were finding it difficult to obtain complaint cover.
Mortgage Solutions revealed in its last issue (21 October) how adviser groups attending a seminar at the Chartered Insurance Institute had strongly criticised the FSA’s stance prior to this concession.
Tracey Mullins, director of public affairs at the Association of Independent Financial Advisers, said: ‘We welcome the move, and although it will not solve all the problems overnight I hope it will increase capacity and make it easier for insurers to insure IFAs.’
The change will initially apply to independent financial advisers as it will run for a period of nine months. However, it could eventually impact on mortgage brokers when the FSA takes over regulation in October 2004. The FSA has said it will consider making a formal rule change if the modification is judged to have had a positive effect.