FPA’s PI scheme stumbles on back of ASIC/ACA survey

TheFinancial Planning Association’s (FPA) attempt to set up its own in-house professional indemnity (PI) insurance scheme for members has suffered a setback as a result of the recent damning report by theAustralian Securities and Investments Commission(ASIC) and the Australian Consumers’ Association (ACA) into the financial planning industry.

The FPA had been in negotiations with a UK-based insurer to set up the scheme, however it is understood that negotiations have now been frustrated as a direct result of the ASIC/ACA report.

The FPA has refused to comment on the status of the scheme, but it is understood the insurer has asked the FPA for supplementary information to satisfy its concerns about the financial planning industry in Australia after reading the ASIC/ACA report.

It is also believed the Financial Industry Complaints Service (FICS) in Australia has been asked to prepare a report on the insurance claims history of the local planning industry for the insurer.

FICS refused to comment when contacted byMoneyManagementlast week.

The ASIC/ACA report is also having an impact on the ability of financial planners to gain PI cover outside of the FPA’s attempts to set up its own scheme, according to leading broker Brian King.

At the height of the crisis over PI insurance for financial planners last year, King, the managing director of Crown Insurance, brokered a deal to cover members of theAssociation of Financial Advisers(AFA).

He says his negotiations with three different insurers on behalf of “significant interests in the financial planning industry” have fallen through since the release of the ASIC/ACA report.

According to King, insurers fear the report will prompt a rush of claims against financial planners.

“Prior to the report, the underwriters were starting to warm to the financial planning industry a little bit, but once the report came out they dropped the industry like a hot potato,” he says.

“It is one thing to have ASIC go after the bad apples in the industry, but one of the results of this report is that in a market like we have at the moment, insurers aren’t prepared to take up any financial planners.”

The FPA’s goal had been to have its in-house scheme set up before the next major group PI renewal period for financial planners in late March, saving its members from having to seek PI cover in the open market.