IFA network Tenet Group, parent of mortgage network Lime, is warning that the cost of professional indemnity insurance for mortgage brokers could increase more than many in the industry are predicting.
Tenet is basing its view partly on the number of complaints the Financial Ombudsman Service is expecting to receive about mortgage and general insurance intermediaries, as laid out in the FOS' plan and budget for 2004/05.
The FOS will handle complaints when mortgage and general insurance regulation kicks in and it estimates brokers will generate 5,000 complaints during 2005/06. It also expects 3,500 complaints about mortgage loans in 2005/06, up from 2,903 in 2002/03 and 3,000 on buildings and contents insurance, up from 2,294.
Tenet's regulated networks managing director Nick Kelly says: “This number of complaints really matters. And as only around 5-10% of complaints get as far as the FOS, the total number of people complaining is in reality much higher. PI insurers have to put a reserve against complaints made so an increase will affect premiums.”
Kelly believes more complaints will arise under FSA regulation than under the voluntary mortgage code, pointing to the MCCB's report for 2002/03 showing only 603 complaints against mortgage intermediaries. He adds rising interest rates will add to the problem.
FOS spokesman David Cresswell says: “It's a matter of finger in the air when predicting complaints but we have talked to the likes of MCCB and the GISC and extrapolated figures from them. Given there are 20,000 firms mortgages and general insurance, 5,000 is not a high figure.”