The Association of Independent Financial Advisers (AIFA) is calling for an industry-backed professional indemnity insurance (PII) scheme in an effort to address the problem of spiralling premiums.
Paul Smee, director general of AIFA, speaking recently at an FSA workshop on PII, commented on why the IFA community has been particularly badly hit by the lack of capacity in the PII market and the steps needed to remedy the situation.
He said: “The FSA sees its requirement for PII cover as protecting consumers. This is not what the PII market sees itself providing. PII cover protects firms. This is why we believe that in the long term, IFAs should not operate without PII cover because it puts their business at risk.”
He added that there should be better regular and direct communication between the regulator and the PII market to increase each other’s understanding of the way in which they operate.
“The regulator must continue to make it clear that under the Financial Services and Markets Act, retrospective reviews of past business are highly unlikely to take place. This is because the Act has a much more complex process to go through before such a review can be instigated,” said Smee.
He said that an industry backed scheme, which is properly underwritten so that good business does not subsidise bad, must be pursued but acknowledged that this would take time to put in place. “Therefore there must be an interim solution to keep capacity open now,” he added.