Jupp (pictured) told Mortgage Solutions the market was incredibly tough and warned fellow brokers to prepare well in advance as he believes “this year will be the hardest to get PII in a generation”.
“I would be guilty of feeling this is a one-off problem but I have spoken to fellow intermediaries and distributors and they have had similar issues, so I want to help manage expectations for others,” he said.
“They have been hit by quotes six, seven, or even eight times bigger than expected and it could be one of the biggest challenges they are going to face.”
The results can mean firms paying thousands or even tens of thousands of pounds more potentially for a far lower level of cover.
Paying more for less
The figures Jupp shared with Mortgage Solutions show in two separate quotes Brightstar was offered almost half the level of indemnity protection with an excess tens of thousands of pounds more, for premiums as much as eight times higher.
The firm was eventually able to find a similar level of cover to its previous policy but this still involved a doubling of its premium.
“If you speak to the right people and make a bit of effort there are still insurers willing to work with mortgage intermediaries,” Jupp continued.
“But they are not on the portals, you need to put in the work. Our broker worked through the night to put the case together to meet the insurer’s deadline.
“Yes, we can afford to pay six or seven times premium if we really had to, but most brokers can’t cover that. This will probably force some firms out of business this year,” he added.
‘Know our business better than FCA’
Jupp highlighted that the assessment process by the new insurer when taking on the case and understanding the run-off cover risk was tougher than assessments by the Financial Conduct Authority (FCA).
“Its four weeks’ worth of work and it’s not just the business’s financial health,” he said.
“They wanted to go back three years and look at all the cases we’d done – that was thousands of transactions, but they will understand our business more than the regulator does.
“Brokers need to know how much work this is, we were less complicated than most but we were underprepared for how long it would take,” Jupp concluded.
Insurers spooked
Brightstar’s case is not a unique one. The National Association of Commercial Finance Brokers (NACFB) has seen similar issues coming from many of its members.
It noted that Beazley’s exit from the market last year left a significant hole for mortgage advisers particularly, but the whole UK PII market has been hard hit in the last few years.
This is down to a number of factors, including the issues around building cladding, which have spooked some insurers and sent premiums spiralling through the roof.
Indeed, conditions were so extreme for fire safety and other surveyors that the government has been forced to arrange its own PII scheme to help solve the cladding crisis.
NACFB managing director Norman Chambers told Mortgage Solutions that its member advice firms were seeing premium increases of four or five times their original level on average.
“For some firms with more complex structures they are even quoting 10 times as much, and don’t appear to be taking into account that many have never had to claim in the past, there’s just not enough competition in the marketplace,” he said.
“We’ve been working with other trade bodies and have written to the FCA and Treasury, but everyone seems to think ‘it is what it is’.
“We are reminding our members to send their information in very quickly but sometimes they are waiting until a day or two before the renewal is due to get a quote or in the worst circumstances after the renewal date with their policy being back dated; all due to the sheer volume of policies being underwritten by the insurer,” he added.
‘More sophisticated CMCs’
Encouragingly, Chambers believes most firms should have gone through the renewal process in the last year but that does not mean there will not be ongoing issues within the market. The facts remain there has been a general hardening of the market and regrettably higher premiums are here to stay.
Claims are also picking up as the payment protection insurance (PPI) deadline has passed and claims management companies (CMCs) look for other areas to focus on.
“We’re seeing a rise in claims coming in but that’s being driven by the pandemic and others looking for a PPI replacement,” he continued.
“We are seeing more and more sophisticated CMCs and if you’re a small broker firm then handling a claim is a real challenge and very time consuming.”
The expansion of the Financial Ombudsman Service (FOS) scheme to increase its maximum claim amount and to include smaller limited companies has also hit PII insurers.
That could bring unregulated deals into scope and far higher value claims, so some of the situation is a result of unintended consequences by regulators.
“Ultimately, there’s just not enough insurers in the market and that too is controlling the price.
“I’m aware there’s a couple of new insurers that have just come to market which have just received their FCA permissions but whether they will support will remain to be seen,” Chambers concluded.
