The FSA has recently been urged by a claims management firm to close a costly liquidation loophole that solicitor firms have used to shift the cost of their professional indemnity insurance excesses to the entire industry.
Financial Advice Liability chief executive, Paul Nedas, stated that he can name several firms that chose to enter voluntary administration in order to avoid paying large excesses on their professional liability insurance when a claim was made against them. Mr Nedas has called for the industry to add business liability insurance providers and cover to the FSA register.
The chief executive stated that the regulator must take more efforts to increase their oversight of complaints procedures in order to ensure that professional indemnity insurance providers confirm receipt of potential claim notifications. To do otherwise would ostensibly allow the levy to increase further if additional claims were submitted to the FSCS.
It is the responsibility of an IFA to submit proper notification to their insurance provider of any claims within the year they were submitted. In the event that an adviser neglects to report the claim, an insurer has the right to refuse cover. This leaves consumers with the FSCS as their only recourse in the regards to compensation.
Mr Nedas stated that IFAs who are suffering from a long string of complaints will avoid informing their insurance providers in order to avoid hefty excesses. These IFA’s then hope that consumers will decide to not pursue the claims.
The tendency to hope for claims to disappear becomes more common when the IFA has a large number of complaints filed against them for poor service, stated Mr Nedas. Likewise the behaviour tends to occur more with the involvement of a toxic product such as Arch or Keydata, he added.