Increased FOS limits to double adviser insurance costs

Under the proposed plans, the award limit would be increased from £150,000 to £350,000 from 1 April 2019.

However Royal London believes the change could increase the cost of professional indemnity insurance cover by £77m. If current premium income is around £50-60m this could more than double the cost of PI cover.

The mutual added that advisers may struggle to bear the extra cost of this cover leading to increased fees for clients. It also believes that PII providers may find the extra costs too much to bear leading to them exiting the market and making it harder for advisers to access appropriate levels of cover.

Steve Webb, director of policy at Royal London, said: “There is a real risk that raising the FOS limit could lead some PI insurers to withdraw altogether and others to hike their prices.

"It is already proving difficult for advisers to obtain affordable cover and this could make the situation much worse. If the result is that fewer clients can obtain affordable advice then it is hard to see how consumers will benefit.

"The FCA itself estimates that there are only a couple of thousand claims each year where compensation would exceed current limits and those who have lost out have other options for redress. By comparison, hundreds of thousands of people turn to financial advisers each year and could suffer if the compensation limit is hiked. The FCA must think again about these proposals”