There are growing concerns that moves to increase the monetary claims limits under the new Australian Financial Complaints Authority (AFCA) regime may result in either the further exit of Professional Indemnity (PI) insurance providers or a substantial increase in premiums charged to advice firms.
Concerns have been raised with the Treasury by both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) with Money Management having also been told that a number of the PI insurers have also informed the Government about the underwriting consequences inherent in lifting the monetary limits.
The warnings come against the background of a number of insurers having already opted to exit the market for the provision of PI products to the financial services industry over the past decade with a resultant rise in premiums and complaints by advisers that remains difficult to obtain PI cover.
It also follows on from the Australian Securities and Investments Commission (ASIC) having been sufficiently concerned about the availability and cost of PI insurance to financial planners that it undertook a review of the issue as recently as 2015.
The FPA has used a submission to the Treasury responding the AFCA implementation consultation paper to outline its concerns about the increased costs it will impose on planners, and specifically referenced the likelihood of increased PI premiums.
“Increasing limits will increase professional indemnity insurance premiums at a time when adviser costs are sharply increasing,” the FPA said. “Further increases will be acutely felt and will be passed onto consumers or, more likely, absorbed by business at an already challenging time.
At the time of ASIC’s 2015 report in to the PI sector, it acknowledged that the availability of PI insurance represented an issue with respect to unpaid determinations.
It also confirmed that PI Insurers remained selective and cautious about offering cover and noted that one of the insurers that provided PI insurance to advice licensees, Axis Specialty Australia, had announced its intention to wind down its retail insurance operations in Australia.
The regulator at that time promised to monitor the impact of the Axis exit on the capacity of the PI insurance market for advice licensees.