The tightening of the professional indemnity insurance market has led the corporate regulator to amend its requirements of Australian Financial Services Licensees (AFSLs).
The Australian Securities and Investments Commission (ASIC) today released an updated version of Regulatory Guide 126 — Compensation and insurance arrangements for AFS licensees (RG 126).
In the updated guide, ASIC has removed the requirement for AFSLs to obtain automatic run-off cover — the cover for claims made after an insurance policy has ended, but as a result of “acts or omissions of the insured” during the period of cover.
ASIC said it had “decided to remove the requirement to obtain automatic run-off cover, as it is not available to AFS licensees in the current insurance market”. Should the PI insurance market soften, however, the requirement may be reinstated. ASIC said it would continue to monitor the availability of automatic run-off cover and may reassess its position if the cover becomes available again.
The regulator said that until 31 December this year, “adequate PI insurance is based on what is available in the market now, provided it meets the minimum requirements outlined in Section C of RG 126”.
The regulator also announced that from January 1 next year, AFSLs must obtain “switching cover”, which the regulator described as insurance for “the situation where an AFS licensee moves a client from a product that is not on the approved product list to one that is on the approved product list”.
In addition, the revised version of RG 126 states that fraud cover is not required for licensees who are sole traders, ASIC said.
