PI Insurance hikes spark exodus from DB transfer advice

Claire Tyrrell reports...

Advisers are continuing to leave the defined benefit (DB) transfer market in droves, with high professional indemnity (PI) premiums prompting more than 30 firms to back away from final salary transfer advice in just three months.

The Personal Finance Society (PFS) found more than 30 advice firms turned their backs on offering pensions transfer advice from October to December 2019 due to problems obtaining PI cover.

Since the Financial Conduct Authority (FCA) lifted the Financial Ombudsman Service (FOS) compensation limit from £150,000 to £350,000 in April last year, advisers have struggled to afford PI insurance.

This led to criticism from the PFS, who warned the regulator these hikes would deter intermediaries from giving pension transfer advice. Additionally, some insurers have pulled out of covering firms for DB transfers as a result of the premium rises.

Red Circle Chartered Financial planner Darren Cooke said retaining his DB permissions was a “day-to-day” decision and that changes to the PI market have impacted advisers’ business considerably.

“It is a really difficult marketplace to be in – even the guys that are doing huge amounts of business, they could come to renew their PI in a year’s time, the PI broker says ‘we’re not insuring you anymore and they’re not going to get cover elsewhere’,” he said.

“The only option is you’ve either have a massive amount of capital adequacy or you phoenix. You’re almost forced by the regulation to close your business down because you can’t afford not to, or you join a network.”

Cooke said his PI premiums increased four-fold in 2018 but stayed relatively flat since. But, he added, giving up DB transfers would not impact his PI premiums in the immediate future.

“They (insurers) are not really interested in what you’re doing going forward. I even offered and said ‘if I stopped doing DB transfers will not make any difference to my premiums and was told no’,” he said.

“The stupid thing about PI insurances is it’s who’s left holding the baby? The people I was insured with five years ago… they don’t care anymore because they’re not insuring me anymore. If a complaint comes in about that case, it’s who’s insuring me today that has to carry the can.

“So when an insurer is looking at me, they’re interested in what I’ve already done, and how likely are they to get a complaint about what I’ve already done. And they don’t care about what I’m going to do today, tomorrow or next year because they can turn around at any point and say, ‘we don’t insure you anymore’.”

He said the PI hikes made him think twice about giving transfer advice, even when that was the best course of option for clients.

The PFS and the Pension Advice Taskforce launched the pension transfer gold standard in April, a voluntary code of good practice DB transfer advice. By the end of 2019 more than 1,225 advisers had signed up to the standard but in the final three months of the year more than 30 firms had pulled out in the space of just 90 days.

The firms that deregistered from the standard stated they were no longer offering pension transfer advice due to restricted access to affordable professional indemnity insurance.

PFS chief executive Keith Richards (pictured) said the PFS expected the number of firms pulling out of offering pension transfer advice to further increase in the coming months as the FCA publishes final pension transfer advice rules.

“We expect the regulator’s new rules to further impact the availability for advice on DB pensions in part due to the rule changes, but mainly because of the severe hardening of the professional indemnity insurance market making it hard for advisers to get cover.”