FSA acts to ease crisis in professional cover

IFAs will face tight new policy terms under FSA modifications to professional indemnity (PI) cover requirements.

Under the modifications, IFAs will pay excess on every claim and the late notifications of claims will be disallowed.

The FSA amended its expectations of standard IFA PI policy conditions after it was inundated by complaints that IFAs could not obtain the mandatory cover in the current hard liability market.

An FSA market review showed IFAs PI premiums had risen by an average of 50% this year and were likely to continue to rise. The modifications will be available for nine months from 1 November and will apply to PI policies taken out during that period.

FSA investment firms division director David Kenmir said PI underwriters had assured him the modifications would increase the availability of cover.

He said the modifications had been granted in time for November, the traditional renewal period for at least 1,200 IFAs. Simplified the modifications are as follows:

  • IFAs will not be allowed to group together claims of a similar nature, such as mis-selling of products, into one claim but will have to pay an excess on every incident

  • Underwriters' defence costs will not be included within the excess, which is a clarification of current policy conditions

  • A clause will be added to policies making it clear they cover FSA rules in force at the time the policy is issued, not those introduced during the indemnity period

  • The discovery period, which currently gives IFAs 15 days after the policy ends to notify the insurer of any potential claims, will be removed

  • A clause excluding indemnity for cyber liabilities, war and terrorism will be added to policies.

    Kenmir said the FSA would continue to monitor the PI insurance market.

    "If it's judged that the modification has had a positive effect, the FSA will consider making a formal rule change," he said.

    The Association of Independent Financial Advisors supported the modifications, which were based on its research.