A significant contraction 

At ValidPath, we keep in regular contact with our PII Broker and Underwriter.  We believe the key to the best outcomes is a mix of good collaboration and communication.  Based upon extensive observation, our sense is that the stance adopted by some intermediaries would best be characterised as 'furtive' when it comes to their interactions with their insurers.  We believe that this is entirely counterproductive.  Indeed, as we have entered this year's renewal process, we've invited our PII supplier to view our systems to ensure that they understand, and are comfortable with, our own due-diligence.

Obtaining good PII terms is dependent upon a rigorous renewal process, one which takes seriously the granular detail contained within the data itself.  This doesn't happen 'by accident' - it requires good systems, robust processes, and the intellectual engagement of all parties who understand its importance.  Because of this, we very highly value the relational integrity of both our Members, and the Principals within our PII supplier.  If these were the only factors which fed into the mix, we'd have "no worries".

But that, unfortunately, is not the case.  We have the FCA to consider, and its actions have led to a very serious degrading of the PII marketplace.  You may have read recently of a number of insurers withdrawing from the marketplace for financial intermediaries' PII.  It has been a 'hardening market' for a number of years now, but this latest contraction leaves us with just a small cluster of active insurers (including our own).  What you may not be aware of is the reason for this sudden contraction:  the FCA has written to PII insurers, challenging them on their use of exclusions within their policies, and requiring them to participate in additional supervisory oversight.  Given that the reason for many of these exclusions has in fact been the way in which the FCA goes about its work, a number of insurers have reacted in the only predictable way.  They have decided that there is no point in remaining within the PII market for financial intermediation.

It needs to be stressed that these changes do not affect ValidPath Members.  We have good-quality PII, and thanks to an exemplary claims record, we're regarded favourably by our Insurer.  But this does raise some questions about what the future looks like, and - indeed - where the FCA is headed.  We have raised this issue with representatives of the regulator on a number of occasion - there seems to be some kind of acknowledgement that there may be a 'problem', but our (high level) contacts within the PII market, report that the extent of consultation is underwhelming, to say the least.  The result has been a kind of 'fiddling whilst Rome burns', where all kinds of initiatives are pursued, especially those that tick politically-correct boxes, whilst a very sick elephant lumbers noisily around the room, requiring urgent attention.  If we are to have a functioning, sustainable intermediation marketplace, especially given the recent hikes in FOS compensation limits, then what is needed is effective PII.

So what is the destination of this particular train?  I am not given to predictions, but it seems to me that the lack of effective action, stretching out over many years, coupled with this recent initiative, could well be taking us in the direction of a kind of centrally administered mutual fund, one effectively under the control of the FCA.  This is not a 'new' idea - it has been attempted in the past, and it has failed dismally for the obvious reasons (increasingly lax rubber-stamping of redress claims led to unsustainable hikes in cost), but that historical insight is unlikely to deter the kind of ideology which takes its satisfaction from the centralisation of power, and seeks to reshape reality according to its own beliefs.  

What we need, for our marketplace to work effectively, is a vibrant, competitive PII market.  The evidence is, at this time, that we're not going to get it.  Watch this space, folks!


Kevin Moss, 21/11/2019