In line with the Financial Services Authority’s tougher stance on borrowers’ affordability assessments, Towergate Lifestyle – a division of Towergate Group – has already modified the exclusions on its PI insurance.
The change prohibits claims re-sulting from fraud, proven or otherwise, plus those connected to self-cert affordability and borrowers who suffer payment shock as a result of repayments substantially increasing at the end of their initial mortgage terms.
Towergate has also stopped insuring brokers against claims from lenders.
Roger Crouther, managing director of Towergate Lifestyle, says: “The wording has been changed in line with the FSA’s tougher stance on affordability assessments.
“There has been a rise in claim notifications recently and changes have been made to maintain compliant wording in consideration of market conditions. Every broker is notified prior to coverage renewal.”
But there are fears that brokers who ignore Towergate’s notification letters and fail to examine the revised terms of their PI policies could be at risk.
One PI specialist says it could result in brokers being held liable for improperly placed mortgages, particularly in the event of a market crash.
Scott Coghill, director of CompliancePoint, says: “This is a knee-jerk reaction by insurers to the liquidity crisis.
“Indemnity insurance is expensive and there has recently been a significant reduction in cover. Brokers are again being exposed to claims based on compliance and they are at risk of losing millions.”
Neil Pointon, chief executive officer of PI broker PYV, says: “Brokers should ask questions about their policies, especially where exclusions begin and end.
“They shouldn’t skimp on insurance. They need the widest ranging cover to protect themselves from insurers that will be looking to take care of their own needs.”