“Insurance companies take an informed view on whether there is sufficient industry income to cover industry claims,” he added. “In the case of IFAs, most take the view that there is not and therefore choose not to insure IFAs. This enables the few insurers who do participate to restrict their cover and increase premiums.
“This may seem unfair but it is simply supply and demand and if they could not take this action they might also exit the market. It is vitally important that the PI insurers can make money from the IFA market, or else there is no market.”
Mr Bracher, however, was more upbeat on the future, particularly as many of the problems that had been generating claims were now “blowing over”.
After a period of recession, poor investment returns and scandals, he remained optimistic that more PI insurers could return to the market, which would bring more much needed competition.
Dysfunctional
In response to the claims from some advisers that the FCA should address the growing concerns of a dysfunctional PII market, a spokesman for the regulator said: “The level at which PII premiums are set is a commercial decision taken by insurers.
“PII is important because it provides additional financial resources from which firms can pay justified claims, and helps to prevent insolvency and excessive claims on the FSCS [Financial Services Compensation Scheme], which is funded by firms that are still trading.”
The spokesman also referred to page 25 of the FCA’s 2013/14 annual report, which included references to the action it took on varying the permissions of professional services companies, and agreements it made with others to better manage the issue.
Daniel Liberto is a former features writer of Financial Adviser
Key points
Many financial advisers are concerned about the rapidly changing environment for PI claims
Some predict that those who cannot self-insure will either switch to networks or become insolvent
Some claim that the regulator could do nothing to bring premiums down in a free market
