Professional indemnity (PI) insurance provider Collegiate has questioned whether it will continue to insure defined benefit (DB) transfers following the FOS compensation limit increase.
In an email seen by RP’s sister title Professional Adviser, the PI provider confirmed all of its active policies would provide full indemnity cover for any Financial Ombudsman Service (FOS) awards up to the new £350,000 limit.
It said, however, it could not extend this cover to complaints about DB transfers arranged after 1 April 2019 – the date the FOS award limit increased.
For current Collegiate policyholders wishing to continue arranging DB pension transfers after 1 April, the insurer said it would “consider” providing cover for the increased FOS limit, subject to the completion of a questionnaire.
The questionnaire asked advisers how many DB transfers they have carried out before 1 April, what the average value was and what their largest transfer value has been.
It also asked those intending to continue with DB transfers from 1 April how many DB transfers they anticipated they would carry out over the next 12 months.
‘Check PI cover’
On Friday, the FCA sent an email to some adviser firms reminding them to double-check their PI policy provides cover for the new FOS limit, which rose just three days later. This email, also seen by Professional Adviser, stated, if firms were unsure about their cover, they should speak to their insurer or broker as soon as possible.
With effect from 1 April, the award limit for FOS claims increased from £150,000 to £160,000 for complaints about acts or omissions prior to 1 April 2019, and £350,000 for complaints about acts or omissions after 1 April 2019.
When the FCA announced its intention to up the limit last month, it admitted PI insurance costs could rise by between 200% and 500% for advisers in a “worst-case scenario”.
‘Vulnerable and helpless’
IFS Wealth & Pensions director and Chartered financial planner Ricky Chan, whose firm is insured with Collegiate, said the FCA’s change had left him feeling “vulnerable and helpless”.
He said: “Realistically, it’s not going to affect our advice process as we decided a long time ago not to advise on DB transfers due to the risks involved. Even if we were to charge a ridiculous £50,000 per case, say, it would not be sufficient to compensate or reward us for a lifetime of liability and high PI insurance premiums for life – we’re in the business for the long-term.”
Although cautious about DB transfers, Chan said he was expecting PI insurance premiums to rise when he renews his firm’s cover because of the ombudsman’s compensation limit increase. As a result, his firm is likely to turn away more clients “which seems to be the direction of travel for most firms”.
Chan added: “I have to say that, when you realise overnight that your PI insurance may not be sufficient to cover FOS limits, and the uncertainty involved, it’s a scary place to be as you feel so vulnerable and helpless.”