FSA admits new FOS award limit increases PI Insurance costs

The Financial Services Authority recently admitted that the recent proposal to increase the award limit of the Financial Ombudsman Service to £150,000, a raise of £50,000, may result in increasing the costs of professional indemnity insurance for advisers.

The FSA’s proposed FOS award limit increase was recently published in a complaint handling consultation paper regarding commercial insurance costs.

In the paper, the organisation stated that while they have not demonstrated any ability to estimate how much professional indemnity insurance premiums would increase if the FOS award limit were increased, several professional liability insurance providers have indicated that an increase would most likely occur.  As a result, the FSA said, they are open to more evidence to explore the issue.

The regulatory organisation also added that smaller firms may be more significantly impacted, as a significant percentage of their total earnings are taken up by the cost of professional indemnity insurance.

Martin Archer, legal director for Collegiate Management Services, stated that the increase, as proposed by the FSA, would result in larger monetary awards whilst refusing to provide an oral hearing for the adviser, as is their right.

Mr Archer stated that the FOS, in trying to provide quick, cheap justice, has necessarily discarded a massive number of safeguardsthat the courts have put in place in order to ensure that a just decision is reached.  The FOS, Mr Archer continued, by necessity must compromise on many issues, making them the first to be accepting of such compromise, but when quite large sums of cash are involved, such compromises are increasingly difficult to justify, especially not at £150,000.

Chief executive for PYV Neil Pointon also commented, stating that the FOS seemed to be distancing itself from low-cost, high-volume complaints, which is troubling since many industry insiders feel that the ombudsman was founded specifically to deal with such issues.

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