The FCA has told Professional Indemnity insurers that they must support its British Steel Pension Scheme (BSPS) redress scheme and avoid “unreasonable barriers” to compensation.

The watchdog says PI insurers should make every effort to fund compensation where claims are upheld.

Some adviser firms hit by BSPS claims are concerned that their PI insurer will try to avoid paying out.

In a 'Dear CEO' letter this week to PI insurers, Sheldon Mills, FCA executive director of consumers & competition, tells Professional Indemnity insurers, and brokers who have arranged PI cover, that must work with the redress scheme and support the smooth processing of claims.

Yesterday, the FCA detailed its BSPS redress scheme which will mean 1,100 BSPS members will receive payouts totalling £49m for receiving poor pension transfer advice.

The scheme relates to firms that gave defined benefit (DB) pension transfer advice to British Steel Pension Scheme members between 26 May 2016 and 29 March 2018.

Many BSPS members were badly advised by a number of adviser firms causing a wave of complaints and concerns raised in Parliament. Some of the adviser firms have gone bust and it is expected that more firms will fail as claims come in. The Financial Services Compensation Scheme is expected to deal with many of the claims relate to failed firms.

The FCA said that its review of BSPS advice found “high levels of unsuitable DB pension transfer advice were given to BSPS members.” These levels were “significantly higher” than those seen for advice given to members of other DB pension schemes.

Under the FCA’s redress scheme for BSPS members, firms which gave advice on BSPS transfers are required to review their advice. If the advice is found to be unsuitable and resulted in loss for former BSPS members, firms are required to provide compensation.

These firms are then required to assess the adequacy of their financial resources to meet potential liabilities arising from unsuitable BSPS advice. This includes consideration of the availability of any cover under the firm’s PII policy. 

The FCA said, however, that some adviser firms were concerned that their PI cover may not “respond” to claims covered by the scheme.

In the Dear CEO letter, Mr Mills says that he expects insurance firms to be able to say whether the PI policy is expected to provide cover for claims falling within the scheme.

Where the PII policy is not expected to meet such claims, a summary of the reasons for this must be provided. For example, whether the policy is subject to an exclusion for such business. 

Where BSPS scheme firms make notifications or claims the regulator expects PI insurers to handle claims "promptly and fairly" including paying out claims swiftly once settlement terms are agreed.

The FCA has told PI firms they should have “no unreasonable barriers” to reporting and settling claims. 

The FCA has previously published its expectations for manufacturers and distributors of PII products in Finalised guidance on advising on pension transfers (FG 21/3). This highlighted that PII contracts should be “clear about what business is covered and that ongoing notification requirements are reasonable.”

In the letter Mr Mills also makes clear that expectations for PI insurers are aligned with the forthcoming new Consumer Duty.