Insurance brokers have told Money Management Vero Insurance representatives have alerted them to a price hike of up to 50 per cent to Vero's professional indemnity (PI) insurance for financial planners.
Under the pressure of increasing claims following the global financial crisis (GFC), Vero had already restructured its PI insurance last March, reducing the level of cover it provided for financial planners.
It said claims against planners had increased from approximately five claim notifications per month before the GFC to about 60 in March 2011.
Although Vero was contacted, it would not confirm the price rise but said: " Professional Indemnity cover for financial planners is underwritten on the merits of each individual risk and premiums are calculated accordingly".
Financial Planning Association (FPA) chief executive Mark Rantall said an insurer's claims history would dictate its pricing structure.
He said the FPA's insurance broker partner Jardine Lloyd Thompson had informed the FPA it had not received a claim notification from any FPA members for the past three years.
Rantall said if an adviser wanted to protect their business, they should sign up to a profession. Only 1.63 per cent of the Australian Securities and Investments Commission (ASIC)'s actions against planners over the past three years were against certified financial planners, he said.
ASIC noted the issues planners were having with PI insurance post-GFC in a submission to the Parliamentary Joint Committee in August 2009.
It said insurers providing PI cover for planners had contracted since the economic crisis, with only four mainstream underwriters available after two insurers dropped planners from their eligibility lists due to the increasing number of claims.
Premium Wealth Management general manager Paul Harding-Davis said if PI insurance was to increase across the board, the small number of insurers that provide PI cover to planners in Australia might drive efforts to source insurance offshore.
Alexis Insurance Brokers principal Christina Kalantzis said while the majors had the clout to look offshore, most overseas underwriters would only service the specialist risk advisers – and not small planning practices.
Kalantzis said an announcement by the Financial Ombudsman Service (FOS) that it would assess more complicated and complex issues had put the insurance industry on notice.
With an expected increase in the number of FOS claims, Kalantzis said the PI providers were aware they would have to cover the cost of the external resolution process if a claim was made under their Australian Financial Services Licence (AFSL).
She said she expected PI insurance for planners to rise across the board as a result of the FOS and the move from 'appropriateness of advice' to a broader 'best interest duty' definition under the Future of Financial Advice reforms.
"You're going to see the smaller AFSLs looking at selling out or joining the larger end. You'll see the larger guys controlling most of the distribution arm. It would be difficult to get independent advice," she said.
