By now the alarm bells will be ringing for many mortgage brokers, as the full extent of the professional indemnity (PI) insurance problem slowly becomes clear.
Despite the best intentions of the Financial Services Authority (FSA) to ease the pressure on those financial advisers whose PI cover is coming up for renewal soon, it is now apparent a growing number could find it hard to even find an insurer prepared to offer cover.
Last month, the FSA made concessions to its required levels of PI insurance. This was supposed to encourage underwriters to write more business and bring down premiums, however it may not have been enough as a number of advisers have since reported that they were unable to secure cover at all.
Even if cover is offered, PI premiums have risen by an average of 50% this year, which could be the final straw for a lot of firms finding that the costs now outweigh the benefits of continuing to operate in the market.
Worryingly, there have been reports in the national press of advisers choosing to operate with reduced PI cover, or even none at all. And with some networks opting to keep costs down by excluding mortgage endowment queries, there are growing concerns future mis-selling claims could wipe out some firms that have previously had a blemish free record. This is a problem that could become a lot worse if there is ever a significant downturn in the market, as the number of claims is likely to increase.
This is a problem advisers do not need, and comes at a time when the FSA is trying to clean up the image of brokers. It seems unfair that external economic influences can threaten to damage a largely healthy market.
So what is the solution? Suggestions range from shopping around for cheaper PI cover. Just because some premiums may be too high, others may be more acceptable. Failing this, and if the adviser is not part of a large firm that can take on some of the risk itself, another option may be to sign with a network that can ‘ theoretically ‘ use economies of scale to reduce premiums.
However, it may be too early to start panicking. If the FSA continues to act in a conciliatory manner, firms may be able to ride out this situation, and as the insurance market softens premiums may fall to more realistic levels in time.