Broker says advisers’ PI insurance premiums could increase

According to one professional liability insurance broking firm, professional indemnity insurance premiums for advisers could increase if insurance companies pay out on FSCS claims made against Keydata distributors.

Keydata distributors have been written to by law firm Herbert Smith on behalf of the Financial Services Compensation Scheme in order to initiate the process of supplying Keydata investors with compensation.  The total annual business liability insurance premium for the IFA sector in the UK is around £40 million, according to Neil Pointon, retail director for Howden Insurance Brokers, and if insurance providers were to accept Keydata claims, the effective result would be to swamp any provisions these insurers have made.

Mr Pointon also said that he expected that professional indemnity insurance policy availability for IFAs would be reduced dramatically as a result.  The retail director also predicted a massive rate increase to occur as well in such a situation.

However, if insurance providers decide to reject the claims, companies could be forced to shutter, as claims against them are handed back once more to the FSCS.  Professional indemnity insurance offers no product guarantees, said Mr Pointon, but to protect against errors and omissions or negligence, and there is no reason for professional indemnity insurance underwriters to follow the lead of the FSCS by deciding to make these payments.

A select number of professional indemnity insurance policies may have exclusions for claims which involve illiquid or suspended funds.  Any IFA who have recently been in receipt of a letter from the FSCS are strongly urged to reach out to their professional indemnity insurance provider as soon as possible in order to determine their eligibility.

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