Many professional indemnity insurance providers have begun to not only scale back the amount of business liability insurance cover they offer to IFAs but have even begun to refuse cover altogether, citing concerns over recent investment failures.
In the wake of the Arch Cru fund failure and the Keydata collapse, advisers have been warned that they may be facing professional liability insurance premium hikes in addition to levies from the Financial Services Compensation Scheme. The recent decision of the FSCS to enlist the aid of solicitors Herbert Smith in order to recover funds from approximately 500 IFAs which sold Keydata products is the impetus behind the potential insurance hike, with many providers wasting no time in pointing out policy exclusions which would preclude them from paying out on FSCS claims, while others have ceased writing new IFA business cover completely.
In one instance, one insurer informed its IFA client in a letter that due to these exclusions regarding insolvency and life settlement funds it would not hold any successful claims made by the FSCS as valid, leaving the IFA to twist in the wind. Other insurers have gone one step further in their decision to cease writing new IFA cover, such as QBE Insurance Group.
The nature of the cover insurers were providing IFAs have been affected by both the impact of failed investments and difficult economic conditions, according to Howden Insurance’s retail director, Neil Pointon. The market may soon harden quite seriously, Mr Pointon added.
Chapters Financial director, Keith Churchouse, had a slightly different view. In lieu of dramatic premium increases, Mr Churchouse said, insurers have instead decided to add more caveats and exclusions to policies instead.