A growing number of licence applicants are unable to afford professional indemnity insurance following the Hayne royal commission, according to a consulting firm.
Because the insurance market has hardened following the royal commission, this is making it difficult for some organisations to obtain PI insurance, The Fold Legal head of licensing Sonia Cruz wrote in a blog.
She suggested licensees start looking for PI insurance before they even lodge their application. Further, she said licensees should find an insurance broker that specialises in PI insurance and make sure they’re familiar with the compensation and insurance arrangements outlined in ASIC’s Regulatory Guide 126 (RG 126).
“As you will need to renew your PI insurance annually, and without it you can find yourself in breach of your regulatory obligations, we suggest finding a broker that can support and work with you to obtain the right level of cover. It will save you a lot of time and energy in the long run,” Ms Cruz said.
Ms Cruz also advised licensees to know what PI insurance they need and what it must cover and that not all services require PI insurance.
“For example, if you’re a lender, there’s no strict legal requirement for you to hold PI insurance. Some covers are harder to obtain than others, so if you don’t need them to comply with the law, it may be worth not insuring that risk in the short term,” she said.
Lastly, Ms Cruz suggested that, in their licence application, licensees clearly describe their business and the services they will provide.
“This will make it clear to ASIC what they need to insure and what they don’t,” she said.
Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.
You can contact him on [email protected].
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