The Association of Independent Financial Advisers (AIFA) has challenged a Liberal Democrat assertion that 35% of independent financial advisers (IFAs) are operating without any professional indemnity (PI) insurance.
The Liberals quoted Financial Services Authority (FSA) figures which stated that only 1,741 out of 2,674 (65%) IFAs whose PI cover expired between 1 September 2002 and 30 April 2003 have told the FSA that they have obtained new cover.
Commenting, Dr Vince Cable, Liberal Democrat shadow Department of Trade and Industry secretary, noted that successive misselling scandals in the financial services sector had pushed the cost of PI cover ‘sky high’. He said: ‘Insurance companies do not reward good risk management by individual businesses, preferring instead to rate risk by industry sector. The Government must act to ensure that the insurance industry prices its charges to more closely reflect the performance of individual businesses, rather than just assessing an industry average.’
However, Fay Goddard, director of policy at AIFA, said: ‘It is difficult to put a percentage on it but, by head count, 35% is not the case. By firm it is also debatable, because of the networks and nationals, who may self-insure or have adequate cover. However, we do not underestimate the seriousness of the situation, it is still an extremely difficult market and both small and large firms are having difficulty both in getting cover and in ensuring that cover is compliant with FSA regulation.’
Also responding to Cable, Ruth Kelly, Treasury secretary, said: ‘This does not necessarily mean that the other IFAs have not got cover. IFAs are reluctant to confirm that they have cover until they have received a cover note even though they may have agreed terms with their broker. The FSA is contacting the remaining firms to establish their position.’