New figures released by the Financial Conduct Authority (FCA) show that companies employing advisors have experienced a sharp rise in professional indemnity insurance (PII) costs.
The FCA report reveals an average rise of 17% in the cost of these premiums during the course of last year, with the total sum firms paid out in PII premiums being £110.3 million – compared with £94.4 million the year before. The percentage of average turnover paid out for these premiums per company was 2.3%, whereas in 2018 it was 2%.
What is most concerning about the findings from the FCA is that it is the small companies that are being hit the hardest by these insurance rises. Mortgage advisory firms paid out 2.3% of turnover on PII premiums during 2019, while insurance intermediaries paid 5.5% and financial advisory firms 4.4%.
Last year, there was an increase in the ‘101 to 500k’ grouping from 2.2% in 2018 to 2.8%. The FCA argued in its report that this increase did not add up to significant additional financial pressure. The most likely explanation for the increase in PII premiums is the changes that were made to the award limit by the Financial Ombudsman Service, which rose to £350,000 from £150,000 the year before.
However, despite these rising costs, the FCA also found that 94% of advisor companies made profits last year.
It is important that firms employ advisors with the proper CeMAP training to ensure they are paying the insurance costs for efficient, qualified employees.