The outcomes from current investment disasters have persuaded professional indemnity insurance providers to place restraints on the cover they offer to financial advisers. In some cases they are ignoring their business completely.
Consultants have been told the financial bill as a result of the folding up of the CF Arch Cru funds as well as the crash of Keydata and could extend beyond just penalising FSCS (the Financial Services Compensation Scheme) charges to include increases in professional indemnity insurance fees.
The FSCS’s most recent resolution to engage the solicitors H. Smith to follow up almost 501 consultancy businesses which marketed SLS – supported Keydata goods remains at the core of a possible price increase by PI insurance firms.
Insurance companies have quickly responded to this deed, which is just the initiation of the FSCS’s effort to get back compensation that was paid out to investors in Keydata. Some have alluded to policy exclusions which translates into not paying out for such instances, whilst others have discontinued writing fresh IFA dealings completely
A written communication spotted by the “Adviser” from a Professional Indemnity insurer to its consultant client identified the exclusions that are found in policies and how consultants may not be directly covered for specific sales’ activities like those conducted with the Keydata product or CF Arch Cru funds, and for fees that have been slapped on to the FSCS’s legal struggle. It states that exclusions related to life settlement money and lack of solvency indicates it will not pay if the FSCS’s case versus the IFA was won.
The letter further stated that ‘it is quite evident that at the least, the insolvency of SLS brought about the demands brought on by the FSCS. Following on from this is that the bankruptcy exclusion also stops the claim being lodged.’ In this situation, there is no doubt in our minds that such exclusions are applicable and thus the claims furnished by H. Smith for the FSCS are not included in the conditions and terms of the policy concerned. We realise that this must be a disappointment to you, but the exclusions do actually apply in this instance.’
There are a number of PI insurance companies that have gone beyond this by making the decision to curtail taking on additional IFA business.