The Australian financial advice industry needs to demonstrate to overseas insurers that it has improved or face increased professional indemnity costs.
Speaking at the FPA roadshow in Sydney, Dean Pinto, partner at law firm Wotton and Kearney, said actions prior to the Royal Commission had deterred insurers from insuring financial advisers.
It was becoming more difficult for advisers to obtain insurance as insurers were exiting the PI market with AIG announcing it would exit in September, following previous exits by Dual Australia, Vero and Axis.
“There is a genuine concern around insuring financial advisers and large dealer groups, the focus is on past losses by authorised representatives. There is a greater risk when insuring financial advisers.
“There are a lot of mum and dad investors in Australia, a higher number than globally, which gives insurers cause for concern that once the COVID support is stopped, there will be a growing number of claims to follow.”
David Martin, director of professional lines insurance at insurance broker AB Phillips, added: “We’re getting to a point where underwriters are becoming very, very selective and that adds another dimension to the scarcity of capacity”.
The biggest challenge, Pinto said, that was deterring insurers was rogue operators, although he acknowledged many of these advisers or firms had since left the market.
“Rogue operators are the obvious source, some insurers cannot make those losses back so they have decided to exit the market. One bad authorised representative (AR) can cost a lot especially if the advice model is a one-size-fits-all model or a cookie cutter approach, that can be costly.”
He said there had been a lot of regulatory change in Australia lately but, overseas some “were more aware of it than others”, putting the onus on Australia to demonstrate how it had improved.
“Financial planners need to help educate their insurers on the steps that have been taken to improve regulation and compliance. They are not all across that overseas, that there have been these improvements.”
Comments
It would be good to know the basis for PI underwriters' selectivity. What sort of businesses and processes do insurers prefer? What are their red flags? It's impossible to force insurers to change their pricing and risk appetite, so perhaps advice firms need to adapt to the insurers. It would be helpful if PI brokers were more proactive in educating the industry about these things well in advance, to allow time for adaptation prior to application or renewal.
It might also have something to do with regulations and legislation which gives a green light to ambulance chasing lawyers to put in claims to complaint bodies that actively work against financial planners to ensure the most vexatious client gets a payment.
And yet again the ones that remain pay for the sins of past.
I seriously need to look into a barista course!
Barista? ... or Barrister? LOL
If anything all the new layers of cred-tape which Frydenberg and Hume imposed make the industry even more unattractive to insurers - it's a full-time job just to remain compliant with all the new rules.
Furthermore, with Frydenberg and Hume having caused an exodus of advisers, it is no wonder PI insurers are exiting a rapidly shrinking market.
time to move on....you're living in fairy land too if you think voting for a party that blocked, hindered attempts at changes is going to make things easier.
Time to get your head out of the sand old bob and wake up to the new reality. The Coalition shafted us big time. There is no excuse for what they did. You can't blame Labor for LIF or the mishandling of FASEA. The RC recommendations could have be implemented very easily, without forcing us to waste stupid amounts of time on TMD's or the new ridiculously over complicated FDS/Opt-In process. The Coalition snubbed us, laughed at us and put a dagger in our heart. Look at the mental health surveys. If you don't realise the suffering the Coalition caused, you need to get out more.
They paid for it at the ballot box. You might be set in your ways with the Coalition, but huge numbers of us were out for revenge. The vast majority of us were rusted on Coalition voters and we influenced our clients to do the same, for decades. But we could not take it any longer.
Rather than victim blaming, you should put your energy into trying to educate the surviving Coalition members to wake up. They just put Jane Hume in charge of the autopsy, which shows they have no idea and Hume will no doubt cover her tracks and downplay the fact that she turned thousands of traditional Coalition voting influencers, who manage money for millions of mostly Coalition voting clients, and turned them into the Coalition's enemy. Unless they wake up to this fact, they will be in opposition for a very long time.
Ahh yes of course it's the Financial Planners fault. It's not the overly prescriptive legislation, a regulator out for blood (ASIC) or AFCA enticing any claim possible and siding with consumers.
Didn't the industry have only 1.4% of AFCA claims? How much is being paid out from PI insurers if claims are so low? What am I missing here.
It's interesting the 1.4% of AFCA cases. It should the the number of cases. Although the % many be low, AFCA probably receives 100,000 cases a year (mainly banking, many with no substance, loss, just a whinge). Then what was the outcome of these financial planning complaints.
You’re missing the mountain of payouts from IDR processes at large licensees - they take the default position of paying the client and claim on PI first. They don’t want to end up in AFCA, so they just shell out the cash.
I don't doubt large licensees are shelling out cash rather than going through AFCA. But are PI insurers really paying claims under those circumstances?
Correct. Easier to pay out the client with smaller amounts of adviser fees than try to fine financial adviser notes that usually don't exist.
I'm not sure about that either. I know a big licensee where the excess is $100,000 so if they have any IDR complaints and payout then its not a PI claim. I suspect most IDR claims are less than the excess on the PI policy.
Jesus! Remind me never to join them. That’s atypical, and @ $100k perhaps a sign the licensee has had a few issues in the past?
I know that the excess for one AFSL of 80-100 planners stands at $20k, pretty clean record which might help that.
It's said “Financial planners need to help educate their insurers on the steps that have been taken to improve regulation and compliance"... sorry but I wasn't the one charging advice fees with no advisers attached...The steps I've taken include getting rid of AMP, the Banks and middle management with no skin in the game out of the Advice industry...Does that help? On another note, I don't think most planners realize how bad the PI factor is. Pretty bad when we're down to almost 1 company and your licensee needs to get on a plane to London cap in hand.
Not my experience. Perhaps your licensee is operating with an unnecessary level of risk? If they have ARs rather than employees operating under their licence that may be the problem. AR licensing is an inappropriate model that was primarily designed for licensee product distribution rather than professional advice supervision. In the current climate it's no surprise it's becoming harder to insure.
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