Reported increases of over 50 per cent in professional indemnity insurance premiums for advisers may be due to financial planning businesses being considered high-risk by insurers.
Practitioners have suggested that the apparent rise in premiums has been caused by the high number of financial planning–related claims when compared to other professions. To avoid having inadequate reserves to pay claims and running at a substantial loss, a “reasonable” premium pool is needed to write financial planners to cover likely claims, Paul Girard, director and national underwriting manager of Mint Plus, told ifa.“It’s an area that’s causing more claims than other areas of professional practice,” Girard said. “If it’s incurring more claims there’s more losses by the insurer or potential losses [and] the insurer has to collect more money to cover that eventuality.”Another reason insurers are running scared is that financial planners are exposed to systemic risks, meaning they cannot insulate themselves from the market, according to Gary Gribbin, director of Insurance House.“They’re engaged basically in the interface with the finance industry with capital markets; if there is a bear market, the likelihood is that nearly all asset classes will be affected,” Gribbin said.Further, if clients sustain market losses they can’t afford to absorb, it’s likely they are going to try and recover and blame somebody for it, said Girard. “If you’re in an investment environment, that is directly in the line of fire for financial planners,” he said.The industry is 24 months off seeing a “real meaningful change” in pricing, according to Trent Franklin, director at Enrizen Financial Group. “We may be in a world that has a new standard when it comes to financial planners given what insurers have seen,” Franklin said.
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