IFAs may be in for rocketing professional liability insurance premiums thanks to the new £150,000 upper award limit that will begin to be offered by the Financial Ombudsman Service.
Tenet development and distribution director, Keith Richards, remarked that he feared financial advisers may have no choice but to fork over higher amounts of cash to make sure they have proper professional indemnity insurance cover. The Financial Services Authority decided to make the revision as a component of its new complaints handling regulations in order to increase industry standards.
Mr Richards commented that the new rules, which go into effect from January 2012, have an increased focus on compensation. This will likely impact the cost of business liability insurance or insurance policy excesses, added Mr Richards. The development and distribution director found it shameful that solutions that were instituted to fix the protection and savings gaps to benefit many were not pioritised as highly as other things, such as enhancing the compensation scheme for but a few consumers.
Mr Richards stated that the latest FSA consultation paper is not unreasonable in many of the rule changes it proposes in principle. However he added that will do very little for the restoration of consumer confidence in the industry, make a positive contribution from a regulatory perspective, or aid a financial services sector that was already challenged.
Alan Seward Financial Services IFA, Matt Rich, agreed with Mr Richards’ assessment. Mr Rich remarked that the limit increase will almost undoubtedly lead to an increase in professional indemnity insurance costs since the financial risks will be increasing.
Murphy Financial associate partner, Adrian Murphy, also commented on the new increase, stating that he questioned the need to raise the limit when average size of a claim from the IFA community is nowhere near the existing limit.