The professional indemnity (PI) insurance market has been a problem for financial advisers over the last few years and, unfortunately, it is not getting better.
The Personal Finance Society (PFS) surveyed 94 members and found the cost of PI cover has increased for almost 95% of financial advisers qualified to advise on pension transfers.
Some 40% said the cost of their PI insurance premiums increased by between 20% and 50% on the figure they paid a year ago, while 36% stated the price they paid for cover soared by more than 50%.
Government intervention
Keith Richards, chief executive of the PFS, said: “The hardening of the professional indemnity insurance market is impacting the availability of advice to consumers, who must take regulated advice to be able to exercise their rights under pension freedoms for defined benefits pension transfers.
“The current method of funding consumer compensation is also unsustainable, and we are again calling for government intervention for a complete overhaul before there is no alternative, as both consumer protection and market sustainability continues to be negatively impacted.
“To achieve this, we must remove the volatility and uncertainty around the availability of professional indemnity insurance, the consequential impact and pressure on the Financial Services Compensation Scheme (FSCS) and its levy. This can be achieved by pooling the cost of compensation at the highest level: funds under management.
“This would mean a much wider, fairer, and sustainable solution for modernising the regulatory, consumer education and compensation funding structure.”
Richards added that this would ensure “consumers don’t lose out on access to advice, are compensated when things unexpectantly go wrong and ultimately have greater trust in our regulated sectors”.
