GOVERNMENT MUST ACT TO TAME INSURANCE COSTS - CABLE

12.35.00pm BST (GMT +0100) Fri 16th May 2003

New Government figures published by the Liberal Democrats show that 35% of Independent Financial Advisers (IFA's) are operating without insurance to pay out damages in the event that they are sued for mis-selling.

In response to questions from Liberal Democrat Shadow DTI Secretary, Vince Cable MP, the Government confirmed that only 1,741 out of 2,674 IFA's (65%) had confirmed that insurance arrangements were in place.

Professional Indemnity Insurance provides essential financial protection in the event that consumers suffer financial loss as a result of alleged negligence. The insurance meets the cost of any damages payable.

Commenting Dr Cable said: "Successive mis-selling scandals have meant the cost of this insurance has reached sky-high proportions. In fact, all forms of liability insurance are proving chronically expensive for businesses, many of whom are now refusing to pay for insurance coverage at all."

"The problem is that insurance companies do not reward good risk management by individual businesses, preferring instead to rate risk by industry sector.

"The Government must act to ensure that the insurance industry prices its charges to more closely reflect the performance of individual businesses, rather than just assessing an industry average."

ENDS

Notes to editors:

Dr. Cable: To ask the Chancellor of the Exchequer what assessment he has made of the number of financial advisers who are operating without professional indemnity insurance. [113223]

Ruth Kelly: The FSA tell me that, as at 6 May 2003, 1,741 out of 2,674 (65 per cent.) of IFAs (whose PII expired between 1 September 2002 and 30 April 2003) have told the FSA that they have obtained cover.

An analysis of the information they provided shows that 94 per cent. of IFAs due to renew their cover in September have done so. The figure for October is 96 per cent., November 87 per cent., December 75 per cent., January 62 per cent., February 63 per cent., March 34 per cent., and April 13 per cent.

This does not necessarily mean that the other IFAs have not got cover. IFAs are reluctant to confirm that they have cover until they have received a cover note even though they may have agreed terms with their broker. This means that there is usually a gap between the expiry of an IFA's PII policy and the receipt of confirmation that the policy has been renewed, by the FSA. The FSA are contacting the remaining firms to establish their position.