Speaking to ifa about the increased costs of PI insurance BFPPG president Wayne Roggero also flagged the role of the regulatory environment in pushing up PI costs.
“I think there are a few factors and it’s just a personal opinion obviously, but I think that there is a lack of competition… also I just wonder whether there’s a concern with FOFA and also possibly that there’s been a number of claims over the last five years or so and they’re trying to recoup their costs,” Roggero said.
However, Claire Wivell Plater, financial services and insurance lawyer and managing director of The Fold, said even three providers in the marketplace would be “reasonable.”
“There’s no gouging… insurance doesn’t work like that,” Wivell Plater said. “Yes premiums are high… they’re high because it is high risk business and insurers have been burned and that’s why they’ve exited the market,” she said.
“You can’t say it’s a conspiracy theory or anything, because it isn’t,” Wivell Plater added.
Insurers have lost “a lot of money”, and “won’t want to come back in until they can be satisfied that is a risk that they want to pick up again,” she said.
“Nobody insures Florida for hurricanes.”
Further, even if new insurers come into the market, “they’re not going to be wanting to insure risks that have bad practices, they’ll be wanting to insure good risks,” according to Stephen Hughes, general manager professional services at Strathearn Insurance Brokers.
Is there enough competition in the PI insurance market? Have your say below.
In the current market there are limited sources from which Professional Indemnity insurance can be obtained.
The main issues relating to PI today is a) the increasing costs to maintaining PI insurance and b) challenges with availability of insurance. Advisers are required by law to have PI and pay increasing premiums every year which the industry has seen almost doubled regardless as to whether there has been a claim or not. And in the event of a claim the issue only gets more complicated, in cases it could well mean that no insurer wants to be involved, leaving the adviser at the insurer beck and call. The industry today is faced with limited more expensive options. The system should be reviewed.
It is no good blaming the insurers for our plight.It is a terrible shame that the poor ethics of a minority of members of our profession have lead to the compulsory PI regime under which we operate. As a Chartered Accountant in public practice, no such obligation exists for my Accounting work yet I have been penalised by the actions of a minority in my Financial Planning practice. I can only hope that as we continue on the current path towards true professionalism by removing revenue based conflicts of interest and improving educational standards we may ultimately be rewarded with a return to a regime of self regulation. We shall know that the investing public has accepted our graduation to professional when this occurs.