SimplyBiz group chairman Ken Davy says the FCA’s proposal that the FOS limit increase to £350,000 will do nothing to stop criminal or reckless advisers that are responsible for high value claims but will push up professional indemnity insurance for legitimate and competent advisers, increasing costs to consumers and ultimately restricting access to advice.
In October the FCA launched a consultation on increasing the FOS award limit, which sets the amount of compensation the ombudsman service can require financial services firms to pay when it upholds a complaint against them.
Davy argues that larger claims should be dealt with through the legal decision-making processes available through the courts via contract law. Davy says is questionable whether FOS personnel have sufficient knowledge and expertise to deal with larger claims and the additional complexities they require.
The consultation closed just before Christmas and a policy statement is due this Spring.
Davy says:“The FOS is a valuable resource for individuals who may have limited means as a low-cost dispute resolution service. We fully support its existence, and the role that it plays in settling disputes. It should be noted, however, that the current FOS limit of £150,000 is significantly greater than the £85,000 compensation available to the consumer in the event of a banking failure, and I believe strongly that the current maximum compensation level of £150,000 should remain unchanged.
“The potential for a high value claim to hit an individual business, and the cost of insuring against such a claim, is likely to be prohibitive for the majority of firms. The inevitable result will be a serious decline in the number of advice firms and therefore the availability of advice to consumers. The impact of a higher limit will be highly damaging to the advice market and significantly increase the cost of PII whilst doing nothing to deter the reckless or the criminal advisers or firms from that activity.
“Our discussions with PI insurers indicate that raising the compensation limit is likely to cause further tightening in an already difficult market, with higher premiums, increased excesses on contracts and an unwillingness for insurers to take on further risk. We anticipate that the number of PI insurers will be further reduced and that there will be a dearth of new insurers. None of which will be beneficial to consumers or consumer outcomes.
“I disagree with the principles at the core of this proposal, and firmly believe that it will be detrimental to the advice market, firms and consumers.”
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