The complexity of financial services regulations has allowed more frivolous legal claims to be raised against financial planners, according to the head of a professional indemnity (PI) insurance broker.
Aon Hewitt Wealth Management general manager Jayson Walker stated the rise of frivolous complaints against financial planners was also making it difficult for insurers to assess them for adequate and affordable professional indemnity insurance.
“The ability to manage compliance and claims within a planning business is being examined closely by insurers. However with the rise of frivolous legal claims and Financial Ombudsman Service (FOS) cases against planners, questions are being raised as to what claims are legitimate and what should be considered by insurers when pricing PI insurance,” Walker said.
According to Walker, PI insurers are looking at the type and the number of claims being paid – but frivolous claims are artificially bumping up the numbers.
“Larger planning groups are also paying out most small claims to avoid any reputational damage that may occur. They are considering their legal or FOS costs and see it as cheaper to pay out a frivolous claim than to defend it,” Walker said.
“This has come about due to the complexity of the current regulatory environment allowing the legal profession to make more claims, and if Treasury does anything in this area it should simplify regulations and provide concrete advice on what needs to be done instead of just general guidance.”
While professional indemnity insurers wait to hear what areas the Federal Government will examine in its review of PI insurance, Walker said that affordability and access to PI insurance, particularly for smaller planning groups, was likely to be considered.
“We believe Treasury would be concerned about this because the PI supply is decreasing, with local insurance provider and underwriter numbers falling.”
