Gaps remain in advisers’ PI policies
Hundreds of advice groups across the country may be holding professional indemnity (PI) cover that fails to meet the Australian Securities and Investments Commission's (ASIC's) minimum requirements.
A review of four PI insurers found that half did not provide the required fraud and dishonesty cover, mandated in Regulatory Guide 126 Compensation and insurance arrangements for Australian Financial Services licensees (AFSLs) (RG 126).
"We identified five areas where there is a gap between our requirements in RG 126 and the PI insurance policies that are generally available," the report said.
The areas ASIC identified gaps in cover were:
- Defence costs;
- Reinstatements;
- Fraud and dishonesty cover;
- Aggregation of claims—limit of indemnity; and
- Lack of claim aggregation—excess payable.
"Of the 591 small advice licensees for whom we received detailed information from the insurers reviewed, almost 14 per cent held PI insurance policies where defence costs were included in the minimum limit of indemnity (i.e. $2 million)," the report said.
While ASIC said it expected the industry to address the issues, ASIC deputy chairman, Peter Kell, warned advisers of the need to have adequate cover.
"Advice businesses must have adequate PI insurance, and they should make sure this cover measures up with our requirements in RG 126," he said.
"ASIC will follow up with surveillance of advice licensees' PI insurance and if we find problems we will take enforcement action."
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