Unique risks in advice
However, insuring the advice market comes with certain unique risks, one of which is the fact advisers can sell a wide variety of products.
Another is the FCA's ability to issue a past business review, which is a "very difficult risk to quantify from an insurance perspective.
"In other professions you just rely upon the customer complaining, it's not created or generated via regulatory influence," Newell explains.
Moreover, there's also the Financial Ombudsman Service to take into consideration, which decides on complaints based on what is fair and reasonable in its own judgement which, Newell says, typically means a lower threshold than in court.
The ease at which claims can be brought and the eagerness of CMCs to jump on new opportunities are further risks he identifies.
"So I think for the multitude of reasons, the interplay between all of those just makes it really difficult from an insurance perspective to navigate this," he says.
"But it does go back to the data. If you've got the right data, the right analytics that sit behind that, you can move from a reactionary state to a proactive state and almost into a predictive state."
Could this approach work for the wider market?
Barerock focuses on mid- to larger advice businesses, with a turnover in excess of £400,000. And for good reason.
For this approach to work advice firms need their technology and processes in good order, and this expense might not suit the smallest firms.
Barerock, for instance, likes its clients to have solid back-office systems and to work with third-party providers on things such as file reviews.
"It tends to be the medium to bigger firms that have got the ability to have those systems, and can warrant having those systems, in place," Newell says.
"[They] may not be appropriate for a two-man adviser practice and it may not be proportionate, it may not be commercially viable for them."
Adviser Philip Milton, agrees the cost savings may not add up for the smallest firms and it may not offset the extra cost.
"If the premia is low for a small business would it make that much difference anyway, whereas the bigger the business, possibly the bigger the difference," he says.
"Of course the ‘risk’ is that insurers would instead simply demand certain things anyway and that doesn’t make the cost fall."
Milton saw his firm's PI insurance increase 38.7 per cent in 2022, though it has since returned to normal.
