Recent analysis from the Australian Prudential Regulation Authority (APRA) has revealed that finance workers, including accountants, financial planners and brokers/dealers have all had an average premium increase of at least 40 per cent since 2015.
Specifically, financial advisers saw average professional indemnity (PI) premiums surge by 43 per cent between 2015 and 2021.
“While average premiums also increased significantly for financial planners/advisers — this was accompanied by a large reduction in risk counts,” the regulator wrote.
This reduction, the regulator explained, may instead be indicative of changes in measurement of risk counts rather than price increases.
According to APRA, large and corporate businesses had the greatest increase in average premium and premium rates.
Namely, since 2015, professional indemnity gross written premiums grew by 75 per cent — made up of a 27 per cent increase in average premiums and a 38 per cent increase in risk counts.
PI insurance has been a sore spot for advisers for some time, with several groups pointing to its problematic application in financial advice.
The Financial Planning Association — now the Financial Advice Association Australia — earlier this year urged the government to review PI insurance and suggested at the time that a properly functioning PI sector would significantly reduce the calls on a CSLR.
While a review has not been announced, advisers’ struggle with PI is only expected to get harder if the Quality of Advice Review’s (QAR) recommendation to scrap statements of advice (SOAs) is adopted.
Michelle Levy’s final report suggests that the requirement to provide SOA would be replaced with the requirement for providers of personal advice to retail clients to maintain complete records of the advice provided and to offer written advice on request by the client.
However, industry insiders have suggested that the loss of SOAs could create issues for advisers looking for PI insurance.
Specifically, if a client experiences financial loss due to following the advice outlined in the SOA, they may seek compensation from the financial planner or adviser who provided the advice. To safeguard against such claims of professional negligence or breach of duty, personal indemnity insurance offers financial protection to the planner or adviser.
GSA Insurance Brokers head of professional and financial lines, Ryan Neary, told ifa that the major concern for insurers in removing or reducing SOAs is that they contribute a significant part of the defence for insurers in the event of a claim.
“If SOAs were removed in their entirety, insurers would lose a significant element of their defensive strategy on behalf of the adviser, which would cause them concern,” Mr Neary said.
