Brokers warned they will need PI insurance ‘until the grave’
Although consumers have a time-bar of six years from when they were sold the product to make a complaint against a firm, they also have three years to log a complaint from when they ‘reasonably’ knew they were mis-sold a policy or product, therefore making firms susceptible to complaints at any time.
Emma Parker, spokesperson at the Financial Ombudsmen Services (FOS), confirmed it was up to brokers to decide how long they wanted the run-off period of their PI premiums to continue for after they stop trading or retire. The average period advisers opt for is six years after they cease trading.
But Dale Knight, head of mortgages at BBB, said firms would need to have PI insurance for life to ensure they are covered against all claims. He said this is a massive issue for the industry.
He said: “It’s ridiculous but advisers do theoretically need PI insurance in place until they go to the grave. With the networks, a lot are saying they will go after the adviser for the debt if the complaint is upheld, even if that advi-ser left or retired, say, 20 years previously. Indeed, in our contracts it says we should go back to the adviser who sold the product and would expect them to cover the debt. But how many advisers know this and will still have PI insurance in place?”
Knight calculated that with average PI cover being 5 per cent of the firm’s turnover, and annual turnover being around £60,000 for the average firm, advisers could expect to pay around £70,000 every 20 years after they retire to cover themselves.
Tony Jones, director of Pink Home Loans, said: “If it’s reasonable to chase up the broker then we would. It depends on the circumstances. But we would say having a 15-year run-off period on the PI cover is reasonable. Paying for PI until the grave is a little over the top.”
Knight said he will be discussing this issue with the Association of Mortgage Intermediaries (AMI) imminently