Advisers are already seeing increased professional indemnity (PI) insurance premiums when processing their renewals, New Model Adviser® has found.
PI insurers have become increasingly reticent to offer cover for defined benefit (DB) transfers. Their nervousness comes in the wake of bad news regarding transfer advice suitability.
Last year the Financial Conduct Authority (FCA) judged less than 50% of transfer cases to be clearly suitable in a study of 13 firms. Advice that saw British Steel workers' pension transfers put into high-charging funds through unregulated introducers then made national headlines.
While advisers acknowledge the 'sins of the few' are having an impact on many firms across the UK, IFAs have also said regular contact with PI brokers and evidence to support advisory work can build a strong business case to secure premiums.
Read on to find out what advisers have been doing to secure their PI renewals...
Wealth Design director David Philips
'We renew our PI insurance annually. We are, however, aware of a hardening market with regards to firms with DB permissions. The market seems spooked by the Tata Steel saga and has effectively made an impact on securing favourable premiums.
'We are facing challenges [as a result of transfer market issues], so we prefer to remain with our existing broker. It pays to remain and can be viewed as negative on the firm to be a butterfly, moving from one insurer to another.
'In order to put forward a strong case in the renewal process, we use a compliance officer to check our reports. We need a strong proposal to [put forward] to the broker to explain what we have done and the reasons for our actions. I’ve heard a case where a firm simply stated it carried out a DB transfer "because the client wanted to". This is not enough.
'We look to put together a proper business case. It is important to explain why your business is sound and why they [insurer] should insure you. We are in regular contact with our brokers and have already had two or three discussions on the market and how we can put together a business case before our renewal in November this year.
'With our renewal, we are expecting a premium rise, as a result of the current market. If a firm was looking to get a cheaper rate, however, you would have to be prepared for higher excesses.'
LEBC director of public policy Kay Ingram
'When it comes to PI insurance, you have to have a policy that is comprehensive and affordable.
'To secure our position, we are in in-depth discussions with our PI brokers all year round. We discuss what we’re doing and how we are managing risk. As a result of this proactive dialogue and approach, there is no issue when it comes to renewal.
'PI insurers do not have an issue with firms with risk audits and do not have a problem with firms that are advising long-standing clients on this [DB transfers].
'However, they [insurers] do have an issue with firms that go out of their way to find clients to advise on transfers and have no previous relationship with these clients. Firms that are factory-gating, like the case of those involved with British Steel.
'There is no doubt the misdemeanours of the few will raise PI for all in the industry and raise the FSCS levy.'
Argyle Financial Group director Phil Melville
'I expect [securing PI insurance to be] an awful lot worse in the next 12 months. PI insurance is undergoing the same mistakes that occurred in the 1980s.
'In the 80s it was difficult for anyone to secure PI insurance due to the pensions mis-selling scandal. The government was encouraging transfers out of defined benefit [DB] schemes to individual private pensions like Sipps.
'The following government then confirmed that this was not in the best interest of members.
'This is exactly what’s been happening now with the encouragement of the pension freedoms. And, the next government could say this is against pensions savers [of today’s] best interests. This could be announced any day now.
'As a result – Pension transfers is the only reason why people are struggling to get PI insurance.
The industry needs to stop doing what it is doing. It needs to stop dealing in pension transfers even if systems are in place. It will not matter how good your processes or staff are. The government will blame advisers for any mis-selling and this will be dumped on the whole industry. We will all have to pay for the sins of the few. What I am cross about is that people like us [advisers] are going to have to pay for this.'
'PI insurers are ordinary people doing their job. [They are] looking at our industry thinking I don’t want to insure against that [DB transfers].'
KW Wealth head of wealth David Inglesfield
'With PI insurers you just need evidence to show you have good controls in place and are being selective with what you’re doing. If firms aren’t able to do this, they are likely to get higher premiums.
'With DB transfers being a high-profile area in recent times, this is a good thing. The attention on the market means advisers are more encouraged to do it well. We charge on a non-contingent basis and we triage clients beforehand – so we can work out if they need to take the advice or not. However, this is a small part of the business and we don’t think it will be a large part.'