The Personal Finance Society has warned the Financial Conduct Authority (FCA) and HM Treasury that they need to shake up the professional indemnity (PI) insurance market after firms have recently been quoted 500% rise in premiums.
The professional body has been contacted by several businesses that offer defined benefit transfers saying they are struggling to obtain or afford the mandatory cover.
Some said they were quoted a 500% increase in their PI insurance premiums and others told the PFS that they were “unable to secure any ongoing professional indemnity cover whatsoever”.
As a result of soaring premiums, more firms are relinquishing their permissions or are left with no option but to cease offering pension transfer advice.
Previous warnings
On 1 April 2019, the FCA increased the Financial Ombudsman Service’s award limit to £350,000 ($452,287, €405,184) from £150,000.
Earlier this year, the PFS warned the FCA and HM Treasury that the increase had immediately impacted the cost of PI insurance.
This led to advisers struggling to obtain affordable cover and restricted access to regulated advice required under legislation for safe guarded benefits of £30,000+.
Call for action
Keith Richards, chief executive of the PFS, said: “There needs to be adequate consumer protection but the raising of the FOS compensation limit at a time when the PI insurance market was already hardening is having a detrimental impact for consumers and is leaving firms shockingly exposed to financial failure.
“The raising of the FOS compensation limit and increasing focus on the possible outcome of the FCA’s supervisory focus is driving PI insurers away from the market, restricting access to advice and therefore preventing people from being able to exercise their rights under pension freedoms.
“Once again, we are renewing our calls to the FCA and HM Treasury to come up with an alternative to the current professional indemnity insurance market and Financial Services Compensation Scheme levy before the consequences drive the agenda.”
