The Insurance Council of Australia (ICA) has urged the Federal Government to consider establishing a compensation fund to assist consumers deemed to have received inappropriate financial advice.
The ICA’s call came at the same time as it warned that the purpose of professional indemnity (PI) insurance is being misconstrued in some sectors of the financial planning industry as something that inevitably provides compensation to third parties.
However, in its submission to the Joint Parliamentary Committee of Inquiry into Financial Products and Services, the ICA made clear that PI insurance is designed to protect the financial well-being of the insured financial adviser.
“It is not designed to enable compensation to be paid to third parties, although in many cases the money received under the policy is on-paid to third parties enabling a wronged client to be compensated,” the submission said.
The ICA said while PI insurance would continue to play a key role in enabling professional advisers to manage efficiently the risks of carrying on business, if the Government’s goal is to enable all consumers to receive the compensation they are awarded, it needed to consider establishing a compensation fund.
“Such a compensation fund would then act as a safety net for those instances where the client is not able to rely on their licensee’s PI insurance to fund their compensation,” the submission said.
