AIG is set to cease offering professional indemnity (PI) insurance to financial advisers in the third quarter this year, a product line that has been under pressure for years.
The looming withdrawal has the Association of Independently Owned Financial Professionals (AIOFP) worried.
In a letter sent to its members on Monday, the association’s executive director, Peter Johnston, warned of “widespread detrimental effects” AIG’s departure could have on pricing and cover availability across the industry.
“AIG were particularly active in the larger dealer group space, considering these groups are perceived to be high risk by the few remaining underwriters in our market, the future looks bleak for them – and that’s just not price but cover availability as well.
“The worst-case scenario if no other underwriter steps into the market are large practices may have to hand back their AFSL to ASIC if they do not have the resources to self-insure,” Mr Johnston said.
Scarcity of PI cover in the advice market has been a key issue for advisers for some time.
At last year’s AIOFP Conference, GSA manager of professional risks Ryan Neary stressed that PI cover was becoming increasingly difficult for advice firms to obtain. He revealed that many of the remaining insurers in the market were 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.”
At the time, Mr Neary said AFCA’s consumer-friendly complaints services was partly to blame.
“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.”
Not sure why AIG exiting the PI market for financial planners is making headlines, they cut back on writing AFSL’s many years ago. There are signs of increasing capacity coming into the market so whatever capacity going out of the market from AIG exiting should be more than replaced. Unfortunately the insurance market has been in a hard market cycle which is due to a number of economic factors like low interest rates leading to min investment returns, and poor underwriting results and this has impacted various professions including financial services and financial planners, the construction and mining industry and engineering professions in particular.
I have a question and I’d be appreciative if someone could answer please. I haven’t bought PI cover for many years as my dealer covered it for me in my fees. How much is cover, generally, for a pure risk adviser (no complaints ever made) who may have a few legacy super clients?
Probably one of the most pressing issues impacting the Advice industry today
Easy, CSLR is for failed funds PI for poor strategic advice….
Which is my point! Advisers don’t have any input in the failed product so ‘our share’ of this CSLR should be for any ‘strategic advice failures’…why should we be paying for something outside of our purview (failed product that was endorsed by research house) if the CSLR could be widened to include the current PI component whilst also being widened to include those who should be included who are currently not. This might solve a lot of issues with getting PI cover?
So, a question…asking for a friend.
If we are ALSO to be paying for investors losses through the Compensation Scheme of Last Resort (CSLR), why do we need PI?