Why a double dip could harden PI insurance

07/05/2010

Written by Neil Pointon

With the current uncertainty surrounding British politics, the UK economy faces the possibility of entering into a double dip recession, putting professional indemnity (PI) insurance for independent financial advisers (IFAs) at risk of hardening, the chief executive of PYV has warned.

Neil Pointon was quoted by the Financial Adviser saying that he believed that if it was not for renewed competition by insurers within the PI market then the cover would have already hardened by now, but as it is rates have remained reasonably static.

However, rather than growing, these rates continue to be "suppressed" as a result of a healthy interest in writing the IFA class of business, he continued.

"At the moment it would appear there is plenty of capacity in that market. The more turmoil there is, [the more chance there is that] there are going to be more claims against this sector because profitability goes and premiums start to rise, but that has yet to kick in," he explained.

However, Mr Pointon pointed out that as an independent Lloyd's broker, PYV has access to the whole of the Lloyd's and London market and the widest range of insurers.

In addition to this, being with an independent firm would help IFAs to secure the best PI insurance rates, he claimed.

So just what is the current risk of the economy entering a double dip recession?

One factor may be the current economic climate in Greece, with Andrew Goodwin, senior economist with Oxford Economics, warning that uncertainty surrounding the troubles the country is experiencing and issues within its bonds market could spread into other EU countries and ultimately the UK.

He noted that Britain currently has one of the highest deficits on the continent, meaning that without a well thought out fiscal consolidation plan being put into action, it will become a target.

However, this is not the only trouble currently facing the country.

Following last week's General Election, the UK has been left with a hung parliament with a slim Conservative majority.

Sterling has already been impacted by the results of the voting, as the country waits to hear who exactly will take responsibility for governing it.

Mr Goodwin said that the nightmare scenario facing the UK is a situation where no one party is able to govern properly, leading to a repeat of 1974, where whoever attempts to form a minority government fails and another election is forced to take place.

Now, the leaders of the three opposing parties are reportedly locked in or planning talks with each other.

According to the BBC, Gordon Brown is said to be ready for talks with leader of the Liberal Democrats Nick Clegg about the possibility of electoral reform, while Mr Clegg has had meetings with the Conservative party about a possible alliance.

Meanwhile, Tory leader David Cameron has said his party is talking to other parties about the possibility of a Tory-led government or alternative options, such as working with the Liberal Democrats.

Michael Baxter (editor of investmentandbusinessnews.co.uk), however, recently urged businesses not to fear a hung parliament as it does not have to be a huge catastrophe.

"The risk of a hung parliament is that the resulting government won't have the teeth to deal with the fiscal deficit and the markets will panic and the pound will fall in value forcing the rate of interest to go up, that's the risk, but I'm not convinced that that risk is particularly high," he claimed.

However, with recent research by the British Chambers of Commerce revealing that 65 per cent of the companies it polled are "concerned" or "very concerned" at the prospect of a hung parliament - with lack of a clear mandate to govern the biggest concern - the results of the election may not be sitting comfortably with the country's businesses.

For now it remains to be seen what the future holds for the economy and, indeed, PI insurance rates, although IFAs and brokers would be well advised to ensure they have comprehensive cover in order to protect themselves in the event that economic difficulties prompt a rise in claims being made against them.


© 2010 Adfero Ltd.

If no story is shown above, please visit our archive section, acessible via the archived stories and press coverage link at the foot of the PYV home page.

Click here to go back to archive list