The warning comes from network Tenet, which added that the Financial Ombudsman Service could also double award payments to £200,000 as the Financial Services Authority is promoting more intrusive regulation and there is still no long-stop against claims.
It said market volatility and an increase in fraud, particularly in the mortgage sector, have put pressure on insurers which are responding by increasing premiums.
Claims against intermediaries are also becoming a major concern, said the network, and the impact will inevitably put increasing financial pressure on adviser firms.
Keith Richards, Tenet’s group distribution and development director, said the financial impact will not necessarily be limited to higher annual premiums and suggested increased excesses and specific policy exclusions could be of greater significance.
“Underwriters are becoming increasingly selective, whilst at the same time adopting a much harder line on existing claims and hurriedly exiting unprofitable areas,” he warned.
“Advisers should not underestimate the potential impact and must be encouraged to undertake a comprehensive review of policy cover, especially exclusions and excesses, as PI providers are sometimes guilty of not doing enough to highlight them.
“Importantly, when firms accept higher excesses they will also need to ensure they are carrying enough capital adequacy,” he added.
“Small IFA firms and mortgage brokers are finding themselves increasingly open to criticism and face perhaps the biggest challenges going into the future. The mortgage market in particular is driving up the cost of PI, due to the unregulated nature of the sector and the relative ease with which a brokerage can be established.
“Anyone taking out or renewing PI cover from this point forward should be aware that they could see a notable tightening in risk. Policy construction - not exclusions - will be more likely and could leave adviser firms more financially exposed than they perhaps appreciate.
“If insurers can avoid or deny claims, they will do. More than ever, anyone taking out a policy needs to be fully aware of the obligations. If not, there is a real danger that coverage could be compromised and the firm might not be carrying enough capital to meet claim liabilities.”
