Mortgage brokers face massive professional indemnity hikes following the effects of sub-prime losses
Insurers have raised professional indemnity (PI) insurance premium rates for mortgage brokers by as much as 500% as the effects of the sub-prime crisis continues to bite.
The hike follows a review by the FSA of mortgage brokers that target sub-prime borrowers and other high-risk categories. The regulator’s review has led to trading being suspended for seven firms with 65 others having to undergo past business reviews.
Phil Smith, associate director at Lockton, said PI insurers were now starting to see claims trickle in on the back of borrowers defaulting on mortgage payment.
Smith said: “A number of insurers are imposing rate increases and higher premiums to account for the additional exposure. Some are changing the acceptance criteria and shying away from the high-risk categories.”
Smith added that although the claims were unlikely to be too costly, he expected them to be frequent and said because of consistently low rates within the market, some insurers might struggle to pay out.
The average PI claim against a mortgage lender was under £10,000, he said. “At the moment insurers are very nervous and their appetite for it is changing."