Could professional indemnity insurance evolve from a mere mandatory transaction to a partner service that helps advisers de-risk their business while ensuring their survival?
This type of model is being championed by Barerock, a relatively new insurer that is on a mission to make PI a friend, not foe for advisers.
Chief executive Jonathan Newell believes PII doesn't have to be a transactional product, priced according to the volume and types of products they have sold.
Instead, it could be a mechanism that helps de-risk an advice business by collecting a broad array of data about its culture and set up.
Advisers have been at the mercy of a cyclical PI market, which hit crunch point some six year sago, as an already shrinking market collided with the defined benefit transfer scandal. This resulted in expensive and exclusionary policies across the board.
In typical cyclical fashion, it has somewhat recovered since, but Newell believes these cycles could be flattened once and for all with a better approach to underwriting PI insurance.
A different perspective
For Newell, PI underwriting should focus on a broader range of data, including about the firm's culture and conduct.
Such an underwriting process first and foremost looks at how products are advised on, the client interaction and the client centricity of a firm, instead of just their turnover.
But this doesn't mean products don't count. Business turnover and product sales still matter, especially to ascertain whether certain products might have been sold en masse, for instance.
And firms with more higher risk products on their books can expect higher premiums to cover the redress risk.
However, firms can also benefit financially from working with certain tech providers as, Newell explains, stronger technology and processes ultimately mean less risk.
He says: "I would much rather insure an advice firm that perhaps some people would consider has got higher-risk products but knowing that they've advised them well, than a firm that advises on vanilla products but advises them really badly."
Newell adds: "We're very much approaching it as a service-orientated product, and proactively engage with our firms throughout the policy cycle to give them tips, tricks and guidance as to how they can ultimately de risk their products with the objective of bringing their premium down.
"For us now it's much more about how the adviser is doing it, how they're recording it, what the systems are like and how they're making sure customer understanding is documented and recorded on their file."
He says the problem with current underwriting practices is that without really good data "insurers are always looking in their rearview mirror when analysing their portfolio. So they're always being reactionary".
Conversely, Newell says, if insurers had access to the right data in real time, "you can smooth the peaks and troughs and you can start helping de-risk firms from a perceived risk much earlier before those risks become actually crystallised".
