Plans to increase the amount of money the ombudsman service can award for complaints against firms could lead to huge rises in the cost of insurance for advisers warns Royal London.
Under the proposed plans the award limit would be increased to £350,000 for complaints about acts or omissions by firms on or after 1 April 2019. The current limit is £150,000.
Responding to an FCA consultation on the issue the mutual insurer pointed to figures showing the change could increase the cost of professional indemnity insurance (PII) cover by £77m. If current premium income is around £50-60m this could more than double the cost of PI cover.
It argues that advisers may struggle to bear the extra cost of this cover leading to increased fees for clients. There is also the further chance that PII providers may find the extra costs too much to bear leading to them exiting the market and making it harder for advisers to access appropriate levels of cover.
If PII cover becomes unobtainable, or if the cost of advice increases then this could lead to less people being able to access financial advice at a time when the need for advice has never been higher.
Steve Webb, director of policy at Royal London said:
“There is a real risk that raising the FOS limit could lead some PI insurers to withdraw altogether and others to hike their prices. It is already proving difficult for advisers to obtain affordable cover and this could make the situation much worse. If the result is that fewer clients can obtain affordable advice then it is hard to see how consumers will benefit. The FCA itself estimates that there are only a couple of thousand claims each year where compensation would exceed current limits and those who have lost out have other options for redress. By comparison, hundreds of thousands of people turn to financial advisers each year and could suffer if the compensation limit is hiked. The FCA must think again about these proposals”.
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Notes to editor:
The consultation document can be found here https://www.fca.org.uk/publication/consultation/cp18-31.pdf
The deadline for responses is 21st December.
For further information please contact:
Helen Morrissey, Corporate PR Specialist – Long Term Savings
- Email: firstname.lastname@example.org
- Tel: 0203 272 5433
- Mob: 07919 170 712
About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.