Independent financial advisors should prepare for rises of 50 per cent – or even more – on their professional indemnity insurance, according to a broker who has been working in the market for more than 25 years.
Jamie Newell, managing director of IFA Solutions, says that he has already seen significantly higher prices for policies that have gone for renewal in the last few weeks.
Newell comments, “For a mid-sized IFA with an annual income of £400,000 or more, rates that had been around 1-1.2 percent of turnover previously are now coming in at 1.6 or 1.7 percent, or even 2 percent depending on the record, and I see no reason why this upward trend will not continue throughout 2012.”
One of the main reasons for these price hikes is that the insurance market capacity for IFA business has been contracting since the collapse of Quinn Insurance in 2010. Recently, two major London market underwriters have indicated that they will not renew IFA policies this year.
This leaves most brokers working with a smaller pool of insurers. Already concerned about the repercussions of the Keydata collapse, insurers see the potential for additional claims if IFAs secure trail commissions in an imprudent manner ahead of the RDR January 2013 deadline. Underwriters also fear that continuing difficult investment conditions could increase the likelihood of mis-selling claims from disgruntled clients.
Professional indemnity insurers also face a number of external cost pressures, again reflected in increased premiums. Weak investment returns and relatively high inflation are particularly worrying for insurers writing liability business where claims may arise years after they’ve received the premium income. Many insurers perceive instability in the eurozone as a threat to the value of their assets which may, in turn, force them to raise further capital to meet Solvency II requirements.
Jamie Newell comments, “At IFA Solutions, we anticipate that 2012 would be difficult, which enabled us to reserve high levels of capacity together with the ability to provide one and two year policies, specifically for IFAs. Our underwriting experience also enables us to offer discounted terms to those IFAs with robust systems and controls.
“We urge IFAs to prepare well in advance for renewal to get the very best terms and conditions in 2012.”
