Money Marketing- 29-Jan-2009

Advisers have been warned to check their professional indemnity insurance policy for any exclusions over the collapse of a bank or financial institution.

At least three insurers, Hiscox, Markel and Chubb, have standard policy exclusions for claims arising from the insolvency of a bank or other financial institution

Hiscox PI underwriting manager Justin Bowen says this is a standard exclusion in the company's policies.

He says: "We perceive it to be a risk outside of an IFA's control. The price we charge is based on the work they are doing, not a third party."

Collegiate Management Services does not have an insolvency exclusion written into its policy. Legal and claims director Martin Archer says: "If the FSA were aware of that exclusion, I imagine they would be concerned about it."

Philip J Milton & Co director Philip Milton says it is wrong that advisers are not covered from claims that may arise as a knock-on effect of a financial institution going bust

He says: "It is not something that you would ever have expected to happen. The question is whether advisers realise this exclusion exists on their policy. They may want to make sure when the time comes to reinsure that they have cover for this."

The FSA was unable to clarify whether such an exclusion would be considered unreasonable by the regulator or whether such a PII policy would be considered adequate cover for an IFA

PYV director Robert Bass says: "Professional indemnity insurance is not there to guarantee financial institutions, it is there to guarantee an adviser against negligent advice."

The Financial Services Compensation Scheme limits payouts to £50,000 for bank deposits, £48,000 for investments and 100 per cent of the first £2,000 and 90 per cent of the remaining for insurers. Advisers have expressed concern that they could face claims for sums above these limits.