The investment failures associated with Arc Cru investment funds and the collapse of investment firm Keydata has brought about a tightening of Professional Indemnity policy wordings by insurers providing PI to advsory firms, as they place curbs on the cover they offer to IFAs.  No doubt the fallout from these failing could also bring about a hike in premiums as the market hardens due to fewer insurers deciding to remain in the IFA market.

The next few years could be a very testing time for the IFA’s profession if Professional Indemnity costs do rise as the FSCS also seem likely to introduce increased contributions to cover its costs in relation to the Keydate and Arch Cru situation. Insurers are likely to be rattled by the decision of the FSCS’s to appoint solicitors Herbert Smith, to pursue around 500 advice firms who sold SLS-backed Keydata products. 

Another move by insurers is to introduce or highlight exclusions that exist in policies which could result in advisers not being covered for certain sales, such as those of Keydata or Arch Cru and for the costs relating to the FSCS’s legal pursuit.  We understand that exclusions related  to life settlement funds and insolvency mean that some policies would not pay out if the FSCS’s claim against the IFA was successful. It appears from sources available, that several PI insurers exclude claims which relate to the insolvency of financial institutions which could leave advisers having to fight their own corner with regard to claims by the FSCS.