PI issues reducing client choice

An increase in the number of professional indemnity (PI) insurance claims over the past few years is affecting the price and availability of PI insurance for planning firms, resulting in blander product offerings at the client level.

PI insurance has been increasingly hard to get for planning firms chiefly as a result of Financial Ombudsman Service (FOS) decisions, which directly impact PI underwriters’ decisions around insurance offerings, according to Financial Planning Association chief professional officer Deen Sanders (pictured).

The increased number of cases means not just rising costs, but also that an increasing number of exclusions are sneaking into policies, he said.

This may force planners to stop advising on the products resulting in FOS decisions, particularly less liquid products, even though the marketplace may have changed between the time of the original complaint and the FOS reaching a decision.

Of greatest concern is the fact that risks are not spread evenly across the marketplace, because the FOS tends to find planners at fault which then places an unfair burden on underwriters, he said.

A lack of competition among underwriters is also contributing to the lack of choice for planning firms. While markets such as the US and UK have 12 to 15 underwriters to choose from, in the Australian market that number is more like three or four, Sanders said.

It may be up to the Government to step in and find a way to increase competition or to spread the liability risks more evenly across the marketplace, he said.

Head of casualty at underwriters Vero, Alex Green, said that he believes competition is on the way back up – and while prices are increasing, they aren’t even keeping pace with the increase in claims.

Although Vero is trying to be more discerning and better understand what it is writing, Green said he had not heard of any firms being unable to get cover.

Some clients will exclude problematic products when they realise a disproportionate number of claims is coming from a particular part of their business, he said.

Craig Claughton, NSW Manager of the FINPRO Practice at insurance broker Marsh, said PI insurance is getting harder to get and to retain for planners because less primary insurers are willing to take the risk from the ground up – and the underwriting process is also becoming more stringent when looking at a firm’s compliance and track record.

More exclusions are coming in, particularly around how firms review products and put them on their Approved Product Lists, he said.

While Claughton hadn’t seen groups deliberately avoid certain products due to underwriting concerns, it is not a long bow to draw to assume that would be the next step, he said. Insurers look carefully at complaints registers, and then the insurer may say they won’t cover a certain product if it is attracting the attention of the FOS, Claughton said.