Top priority for Professional Indemnity Insurance must be coverage for DB transfer advice
As a follow up to its consultation on the funding of the Financial Services Compensation Scheme (FSCS), the FCA is considering bringing in changes to Professional Indemnity (PI) insurance to stop some policies from containing limits on claims where the adviser becomes insolvent. Consultation on this closes 1 August. At present, these can mean the FSCS can’t claim on these policies putting upward pressure on FSCS levies and reducing compensation some customers receive. While agreeing this change would have merit, Aegon is calling for the FCA to give higher priority to ensuring affordable PI is available to firms offering advice on DB transfers.
Steven Cameron, Pensions Director at Aegon said: “The FCA’s proposal to ban PI insurance policies from placing limits on claims where the adviser firm is insolvent have merit. It doesn’t seem fair to allow some adviser firms to opt for a ‘limited’, and so cheaper PI insurance policy, which then risks passing a higher liability over to the FSCS should the firm become insolvent. With no PI limits, overall FSCS levies should fall, benefitting all advisers.
“However, there are growing concerns that adviser firms offering defined benefit transfer advice are facing challenges finding affordable PI. We can’t afford removing claims limits to lead to further shrinkage in the PI market, potentially denying thousands of customers from access to advice on DB transfers. We’re urging the FCA to consider these two issues together, with the top priority given to the DB transfer issue.”
Commenting on how PI insurance fits with the FSCS, Cameron added: “The FSCS is important in providing consumer protection and confidence, but generates significant costs for adviser firms, who end up paying for the mistakes of others. Aegon is pleased the FCA accepted its calls for product and investment providers to contribute more towards intermediary firm claims costs. Importantly, the FSCS should be a backstop when other means of compensating clients fail, and appropriate PI insurance is an important part of that ‘first line of defence’.”
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