ASIC provided responses to questions on notice from Coalition MP Bert van Manen, and new parliamentary joint committee chair Andrew Wallace around the state of the PI market for advisers and whether it was engaging with government on any potential issues.
“It seems to be that more and more businesses and professions are struggling to find quality, affordable, professional indemnity insurance. If the finance sector, which is certainly within what we’re talking about here, can’t get property valuations done, where do we go from there?” Mr Wallace asked ASIC deputy chair Karen Chester at a recent hearing of the committee.
Responding to further questioning around whether ASIC was “alive to the issue” of the scarcity of PI cover in the advice market, Ms Chester said she was “not personally aware” that gaining insurance was a problem for licensees.
However responses to questions on notice indicated the regulator was “aware of concerns relating to the availability and cost of professional indemnity insurance for various sectors, including those that ASIC regulates such as financial advisers”.
“ASIC does not regulate the pricing or availability of insurance in the market. Different market sectors will be affected by economic conditions and market cycles which will affect their risk profile, and the consequent price and availability of insurance,” ASIC said.
“These are policy matters for consideration by the government. We monitor market conditions through regular industry engagement, and we liaise with Treasury and APRA on these matters.”
The comments come following remarks from GSA manager of professional risks Ryan Neary at the recent AIOFP Conference that PI cover was becoming increasingly difficult for advice firms to obtain, with the remaining insurers in the market offering restrictive terms and excess levels that were pricing many smaller licensees out.
“Over the past five years we’ve seen insurers drop off the ledge – a lot of those are London based and got removed a couple of years ago when Lloyd’s [of London] did a review and identified that PI insurance was their second biggest loss leader globally,” Mr Neary said.
“There are only a couple of syndicates left writing this class of business, but they’re only an option for the larger guys because we’re seeing the Lloyd’s insurers apply minimum excess levels of $250,000 up to $500,000.”
Mr Neary said a key reason for this was the establishment of the consumer-friendly AFCA complaints service, which UK-based insurers were not willing to participate in.
“Lloyd’s want to get away from working losses and one of the major items that contribute is AFCA,” he said.
“What they don’t want to pick up are AFCA matters because they see when an item goes to AFCA, 99 per cent of the time it gets found in favour of the consumer, even where the financial planner has done nothing wrong.”
Having read a stack of AFCA cases recently, I disagree that the insurers issue is that “99%” of cases go against the adviser; that’s simply not the case.
But where the PI insurers have a legitimate issue is that even when an adviser does win, the out-of-pocket costs are exorbitant. When an insurer in London hears that their client won their case, but the bill is still $15k, then they – rightly – ask just what on earth is going on down in Australia.
I can appreciate we need a low-cost avenue for clients to seek remediation against bad actors. But AFCAs structure is – as with everything else in this damned game – geared towards large instos with their deep pockets, not small businesses and will, eventually, bankrupt us all.
The answer is, sadly for large Dealer Groups, exceedingly simple. Remove them from the equation – individual registration with one body (a merged FPA/AFA). Those $30,$40,$50k p.a. fees advisers pay dealers can be slashed by 2/3rd’s and paid to the body for them to obtain PI on behalf of an industry, for damages up to say $500k. Anything beyond that is claimed on a personal PI policy which would carry a much lower individual premium for the surplus up to $2mil.
Compliance and software is now handled at the business level not the AFSL level and it’s a business choice who to engage to assist, should the firm desire.
“ASIC does not regulate the pricing or availability of insurance in the market.”
An untruth.
By creating a biased anti-adviser pro-client ecosystem they have encouraged a professional compliance class that finds fault with the smallest most inconsequential misstep (you can be executed for jaywalking), while turning a blind eye to AFCA’s blatant consumer advocacy that has driven up the amount and frequency of pay-outs. Why would a PI insurer want to be in such a space, they are not stupid. ASIC and AFCA have poisoned the pond and then play ignorant when the fish start dying. Industry super funds smile from the sideline.
Me: Why did you climbed onto a bridge going over a major highway and throw rocks at the cars below?
ASIC: I was trying to get the rocks off the footpath so the bikes didn’t get a flat tyre.
Me: But you made the cars crash and people died.
ASIC: It wasn’t my fault they crashed. They should have changed direction before the rocks hit them. Anyway, did you know that no cyclists got flat tyres today so what i did obviously worked.
[quote=Rob]”ASIC does not regulate the pricing or availability of insurance in the market”……..Sorry ASIC but yes you do by virtue of your “Why not litigate” mantra which has created a high litigation risk environment deemed unacceptable to many insurers. Just calling a spade a spade.[/quote]⁴
Like a man that beats his wife and then when his kid follows suit becoming a bully – says oh I don’t know why that could be, nothing to do with me.
If MIA Jane actually implemented a [b]Single[/b] Disciplinary Body as recommended by Hayne, advisers wouldn’t be subject to AFCA at all. PI would be cheaper and more widely available, and professional advice would be more accessible to consumers.
Instead MIA Jane chose to implement a [b]4th[/b] Disciplinary Body, which is an additional layer on top of AFCA, ASIC and Licensees.
I have been saying for years that Afca is anti advisors and I don’t know anybody who as wom a case it’s always the clients who win
These are asinine comments by a narrow minded Regulator. If you consider Financial Advice as part of ecosystem, the Regulator has a responsibility to consider the implications, knock on effects of its actions/ inactions. To assert otherwise is a fiction. They SHOULD know industry conditions.
Causing unsustainable PI conditions for one of the industry stakeholders (Advisers) is part of their social responsiblity as regulator.
There is no industry – nor consumers receiving Advice – without Advisers. Comtemplate this for a sentence for a few minutes. The irony is the Government of the day is proclaiming a win in carbon emissions to save the planet.
In the past, ASIC did not require PI as a condition of ongoing registration. We survived quite well without it then & we can survive quite well without it now. Just make PI voluntary, not mandatory. Whether you have PI insurance or not doesn’t exempt you from claims.
Just become a money coach and leave ASIC, AFCA, FASEA, PI, LIF, etc. behind. You know it makes sense.
But not like Melissa Caddick…!
?
Useless ASIC killing Advisers with massive BS over regulation.
Know problems exist but only ever increase Regs to catch out more Advisers on tiny technical issues.
Kangaroo court AFCA, 99% Advisers loose. What a disgrace.
ASIC then blame Govt, AFSLs and Asvisers as it’s never their fault.
Govt blame ASIC.
Finger pointing everywhere and Advisers keep getting Strangled by Over Regulation. Leave the Advice business, etc.
Govt and ASIC – fix this disaster you have created PLEASE.
It will make ASIC’s job very easy if there are no advisers (given no PI) – that could be there long game… no more absurd than their stupid answers
“ASIC does not regulate the pricing or availability of insurance in the market”……..Sorry ASIC but yes you do by virtue of your “Why not litigate” mantra which has created a high litigation risk environment deemed unacceptable to many insurers. Just calling a spade a spade.