A new captive could provide professional indemnity (PI) insurance for up to 500 independent financial advisers (IFAs) from the middle of this year.

Birmingham-based law firm ProACT Legal Solicitors, which specialises in financial services law, is behind the development of the Isle of Man-based captive, with the working title, Umbrella.

ProACT partner Gareth Fatchett said the captive had the backing of an insurer, a US reinsurer and a London Market broker. He declined to reveal the companies involved, but said they had "vast experience" in the PI market.

Industry sources said Lloyd's broker PYV could be backing the captive, which would have capacity to write £10m in premiums, providing cover for 500 small to medium UK IFAs, with turnover between £200,000 and £500,000.

Fatchett said that only low-risk firms with a good claims history would be covered. He said that of 2,000 such firms contacted so far, more than 500 had expressed an interest in the captive.

ProACT began planning the captive in November last year after witnessing many of its IFA clients struggle to obtain PI cover. "Clearly there's a market problem, particularly with there being a statutory requirement to have PI cover," he said.

Fatchcett said ProACT had held informal talks on the PI captive with the FSA and would submit a formal proposal for FSA approval in May.