The introduction of the Markets in Financial Instruments Directive (MiFID) could cause rates to harden within the professional indemnity (PI) insurance market, according to reports.

MiFID, which is due to be implemented across Europe by November this year, could cause premiums to rise with intermediaries suddenly finding themselves unable to operate due to being without adequate PI cover as PI capacity transfers to European firms who may be seen as providing a potentially less-risky option for insurers.

Chris Cummings, director general of the Association of Independent Financial Advisers (AIFA), confirmed that the predicted hardening was a very real threat, suggesting that with European firms generally seen as 'safer' business to cover, UK-based operations could find their PI premiums increasing and cover being reduced.

"Mis-selling is generally regarded as a British disease and obviously insurers, underwriters and reinsurers are going to be happier providing cover to our European neighbours," Mr Cummings told the Journal.

"So with a relatively small pool of providers it looks highly likely that premiums in this country could be pushed higher again."

MiFID is a direct replacement for the Investment Services Directive, which was introduced back in 1996.

PI insurers could also begin placing restrictions on the type of advice that independent financial advisers (IFAs) are permitted to offer and still be covered, with a percentage limit attributed to high-risk advice areas. Once this percentage figure is reached, IFAs would no longer be covered to offer advice on that subject for a set period.

This is something that some advisers are already somewhat familiar with, as not offering advice on certain products can keep premiums lower. Ian Boscoe of PI specialist broker PYV Ltd recognises the need for there to be a dialogue between broker and IFA to keep premiums realistic while allowing IFAs to operate.

"Most providers also allow for queries and amendments during the term of the cover so it is up to the Insured to broach the subject if a problem seems to be arising," Mr Boscoe told the Journal.

While bigger firms can adjust their capital requirements in some cases to cover this, smaller companies cannot, which could mean less available advice for consumers if premiums rise too high or rigid percentage restrictions are placed on IFAs.