FCA increases Financial Ombudsman Service compensation limit to £350,000

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As you are no doubt aware, the Financial Conduct Authority (FCA) has increased awards that can be made by the Financial Ombudsman Service from £150,000 to £350,000 for advice or services provided on or after 1 April 2019. In respect of advice or services provided prior to 1 April 2019 the award limit has increased to £160,000 and it is proposed that both sums will be reviewed annually against inflation.

What does this currently mean for my firm in terms of Professional Indemnity Insurance?

During the last few months the FCA has been in Consultation with both Insurers and Brokers on this subject and the overriding response has been negative towards the changes which have now been implemented. Insurers are now busily re-calibrating rates and levels of self-insurance retention based upon their historical records of FOS decisions which could have produced larger losses had the new award limit been applicable rather than the original limit of £150,000. The FCA has already calculated that the insurance industry would have been £117m worse off so it is anticipated that rates/premiums will increase but it is not clear at this early stage by how much.

As your broker we are currently undertaking our own review of historical claims across our portfolio of clients to hopefully use as a persuasive argument against the general figure used by the FCA. Whilst many policy wordings do not have a limit against a FOS award we are reviewing all policy wordings so we can advise you if your policy requires amendment with effect from 1 April.

If your Policy renews with effect from 1 April or any time in the next 3 or 4 months we would strongly recommend that you provide us with your full renewal presentation at the earliest opportunity. As mentioned already the Professional Indemnity market is currently in some degree of deliberation about how it is going to deal with this change and it is likely that there will not be a unilateral approach. Some Insurers may Limit FOS awards to a lower sum than £350,000, some may withdraw from underwriting the class and some may just use the opportunity to increase their premium and self-insurance requirements in respect of business advised upon or transacted after 1 April 2019.

As the outcome becomes clearer over the coming weeks we will be in touch again to let you know but in the meantime if you have any questions please do not hesitate to contact us.

About the author

Steve Ray
Director
Professional Indemnity +44 (0)20 7133 1474 Email