Professional indemnity (PI) insurance premiums are set to soar, due to the "unregulated" status of some of the industry and the relative ease with which a brokerage can be established, said Tenet Group.
Insurers have reacted to a 40% rise in claim value, said Tenet, with market volatility and an increase in fraud, particularly in the mortgage sector, putting pressure on insurers.
Claims against intermediaries are also becoming a major concern and the impact will inevitably put increasing financial pressure on advisers, it said.
Keith Richards, Tenet's group distribution and development director, said mortgage advisers and small IFA firms continue to face more criticism than ever before.
"Anyone taking out or renewing PI cover from this point forward should be aware that they could see a notable tightening in risk. Policy construction - not exclusions - will be more likely and could leave adviser firms more financially exposed than they perhaps appreciate."
He said the financial impact will not necessarily be limited to higher annual premiums and suggested increased excesses and specific policy exclusions could be a bigger issue.
"If insurers can avoid or deny claims, they will. More than ever, anyone taking out a policy needs to be fully aware of the obligations. If not, there is a real danger that coverage could be compromised and the firm might not be carrying enough capital to meet claim liabilities," said Richards.
"Underwriters are becoming increasingly selective, while at the same time adopting a much harder line on existing claims and hurriedly exiting unprofitable areas," he warned.
"Advisers should not underestimate the potential impact and must be encouraged to undertake a comprehensive review of policy cover, especially exclusions and excesses, as PI providers are sometimes guilty of not doing enough to highlight them."
