The escalating price of professional indemnity (PI) insurance, combined with an ageing adviser population, has led IFA network DBS to say it will no longer be providing ‘run-off’ PI cover for its retired and former members.
The announcement has ang-ered many advisers as it could now cost former and retired members thousands of pounds to obtain suitable cover.
Around 200 members of DBS are considering suing the network for breach of contract. However, this may prove difficult as the statement of practice is not seen as a legal document by the network.
Until now, the DBS statement of practice on the subject stated: ‘The DBS PI policy continues to provide cover for relevant activities undertaken during the period of membership of the network, even after the member has left DBS. Run-off cover to protect members who leave DBS is not therefore required in respect of their period of membership.’
However, Sue Lewis, spokes-person for DBS, said: ‘DBS has been going for such a long time there are more people in the retired membership than in the current membership. Members are funding the PI cover for those who have retired.
‘In addition, prices in the PI market have escalated beyond belief. This move has enabled us to secure exceptional rates for PII cover for present members. We are putting a facility in place that will help retired and former members purchase cover.’
Lewis also pointed out ex-members have not been officially informed of the change as letters have still to be sent out, and a decision as to the contents of those letters has yet to be finalised.
Rob Clifford, managing director of franchise mortgageforce, said: ‘We contractually demand people who leave us have run off cover for a period of five years. However, it is different for networks that aggregate different firms. You could presume there was a lack of foresight, but an IFA network is little more than a membership club and it possibly cannot be as prescriptive as it might like. DBS may have been using this as a marketing ploy and is now counting the cost.’