Fears that high-risk businesses could be left vulnerable is putting pressure on how professional indemnity insurers cover defined benefit transfers. As the FCA launch further investigations into transfers, IFAs and their PI insurers need to be on their toes while the Financial Ombudsman Service waits in the background to handle complaints.
The cost of insurance now has the possibility of increasing. This is due to the potential for a large amount of transfer claims. IFAs could find themselves struggling to renew existing policies resulting in paying higher premiums and excesses, or face reduced coverage.
Banking on Sustainability
According to Protean Risk head of IFAs, Julian Brincat, transfers have been a priority for PI insurers for quite a few years already, and that “Insurers have varying thresholds from one to the other. Generally speaking we have definitely seen an increase in premiums, excesses and restrictions applied to policies for firms that are more active in advising on DB transfers. Insurers frequently request more detailed information on a firm’s DB processes in order to feel comfortable covering this activity.
“This is one of the main reasons for non-renewal currently, meaning that the IFA has to approach new insurers to find suitable cover. We do see a number of firms approaching us in this scenario, unfortunately sometimes quite late on in the renewal process, but we have been in a position to successfully negotiate terms for them.”
Managing director of Pii Brokers, Jamie Goodier, has also taken note of underwriters. They have undertaken DB transfers and have been more aware of the coverage they can provide.
According to Goodier, “Some insurers are applying more restrictive terms if the number of transfers is disproportionately high compared to the size of the firm. Underwriters are unable to review each DB transfer file to determine if it was suitable and therefore tend to concentrate on the numbers.”
Although DB transfers are seen in a negative light by some of those who watch the market, PI insurers are able to weigh both positive and negative reasons behind transferring and the FCA’s concerns
Due to the FCA’s lack of clarity on DB transfers, it is more complicated for advisers when it comes to PI coverage. Though receiving a visit from the FCA to firms that cover transfers isn’t a sufficient notification to insurers, advisers should inform their insurer when the regulator has been in contact with them about the matter.
Though it may be difficult fortransfers to get coverage, experts are in agreement that IFAs should keep regular contact with their PI providers if they wish to get the best deal. Without coverage, the profession could find themselves paying a steep price in Financial Services Compensation Scheme and FOS bills should firms end up on the wrong side of the FCA.
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