Suncorp-owned insurer Vero – one of the few Australian insurers operating in the financial planning PI space – has confirmed it will cease covering new PI insurance customers in the advice industry from this month.
“A recent product review has determined that the financial planners segment of the professional indemnity market is no longer within our risk appetite,” Suncorp Commercial Insurance executive general manager, commercial portfolio and underwriting management, Darren O’Connell told ifa.
“Vero previously ceased offering cover to new business customers in this segment and has now ceased offering renewals, effective 18 August 2014.
“Vero’s market share has significantly declined over the last two years. There has been increasing capacity in the market over the past 12 months and currently there are a number of insurers offering professional indemnity cover for financial planners.”
However, Vero client and boutique advice firm principal Michael Pinn told ifa that he has not witnessed an “increasing capacity” in suppliers to financial planning businesses.
“Personally, I am disappointed that Vero are exiting and we are denied the opportunity to underwrite with an Australia-based underwriter after this year,” Mr Pinn said.
“Given the [Tax Agent Services Act] legislation, and comments to the effect that providing financial planners with PI cover for tax advice would not be a problem, you are left wondering.”
Mr Pinn suggested that the exit of Vero may be an appropriate time to rethink the compulsory PI regime for advice businesses.
“It has been promoted by a segment of the industry for some time that compulsory PI insurance has contributed to the problem and that not having PI insurance is not necessarily a bad thing,” he said.
“As underwriters exit the market there may be no option but to review the requirement for compulsory PI insurance.”
Should PI insurance be compulsory for advisers? Have your say below.
[quote name=”David Hutton”]been in fin. planning over 45 years with L & G , colonial , A C L Financial Wisdom etc never had a case against me or my Co. Sold Practice 5 Yrs ago ;work part time as a Specialised General Insurance Advisor with a sub authoriser licence with a licence with ASIC .;which CO. do you now recommend ; I assume it will be illegal not to have PI?[/quote]
You are kidding aren’t you? Haven’t you heard of the FSR Act 2001? If you have provided any advice to any consumer, you have already breached your licence, and should immediately stump up to the doors of ASIC. Gees, no wonder the PI insurers are leaving..
OK guys, we all know there are serious problems…but how do we fix it? Isnt it really up to us as advisers to come up with a viable solution? Axing FOS in its current form would be great, but what replaces it and how do you get the likes of FPA etc to endorse it? They are not interested, the pollies aren’t either and neither is ASIC. It really is our problem. so we have to band together and find a solution – a complete package – so nobody can hijack it. feasible???? depends on how cohesive we can be and history would tell us that isnt going to happen. Prove me wrong, please!
Steve #17 Thanks for advice ; I not advising on investment funds only specialised income protection+lump sum trauma cover a GenerAL insurance product . Your thoughts on current P I dilemma?
Ian the PI industry does not need influencing from media sentiment? They have a quantitative record of claims paid out vs premiums received… Individuals will draw what ever conclusions fit their agenda from that.[/quote]
Brent, exactly my point. Ongoing regular negative publicity questioning our entire profession via the regulator on whose watch all the ‘bad advice’ was allowed, can only encourage [u]any[/u] disgruntled client who suffered a negative return due to markets to seek recourse, which in turn directly affects claims due to the flawed FOS system, leading to higher claims and hence insurers leaving the sector.
Throw enough publicity on any issue & it soon forms part of people’s thoughts, discussions & potentially actions (marketing & psyche 101).
Not hard to figure out the ’cause & effect’ relationship undoubtedly exists rather than just the effect or agendas.
David, unless you advise investors stick to cash in the bank & annuities paying NOTHING you will be sued. Any capital losses will be refunded by you. The just when you think your safe advising cash safety, the lawyers will brainstorm & come after you for “opportunity cost” for being too safe. Welcome to financial planning, bend over & let FOS fondle you to death. You can thank the FPA for this by the way.
been in fin. planning over 45 years with L & G , colonial , A C L Financial Wisdom etc never had a case against me or my Co. Sold Practice 5 Yrs ago ;work part time as a Specialised General Insurance Advisor with a sub authoriser licence with a licence with ASIC .;which CO. do you now recommend ; I assume it will be illegal not to have PI?
have been a financial Advisor for over 40 years ; never had a action against me while an advisor for Legal & General , AC&L , Colonial etc , Financial Wisdom etc . Virtually retired ..advising part time re I General Insurance Product !Should I continue to retain P.I.?
[quote name=”Ian”]ASIC also bears a large responsibility for this retrogressive occurrence affecting our industry. Continual skewed negative media releases and scare mongering on the financial planning sector (so that they appear to be active) will only lead to more of these outcomes. Begs the question how that is in the public interests in the long term?[/quote]
Ian the PI industry does not need influencing from media sentiment? They have something better…. a quantitative record of claims paid out vs premiums received. And that is under a compulsory regime. The results say…. potential poor risk exposure. Individuals will draw what ever conclusions fit their agenda from that.
A specialist PI broker wrote me the following 24th June “The current PI market is in turmoil with some markets selectively culling . . . and quoting increases of 200% – 300%” “Their first consideration is the proposal form and if that is not properly completed, your risk will probably be declined within 5 minutes for no apparent reason” “Although most brokers will tell you they review your proposal form before sending it to insurers, we have continual proof that this is not the case” “All this sounds pretty terrible, but you will start hearing some horror stories fairly soon”.
The problem actually arises from the ADR Scheme. Planners have no common law protection and no independent avenue for appealing their decisions. The industry and their PI Insurers need certainty of risk and they dont have it now. There will be no PI if FOS gets its way and increases the limit. It should be cut back to $100,000 and only applicable to the basic products like risk insurance and superannuation, not investment products.
ASIC also bears a large responsibility for this retrogressive occurrence affecting our industry. Continual skewed negative media releases and scare mongering on the financial planning sector (so that they appear to be active) will only lead to more of these outcomes. Begs the question how that is in the public interests in the long term?
You all miss the point.
PI insurance should not be & never should have been a substitute for a properly constituted compensation scheme – funded by all product manufacturers who promote(foist)their products on (unsuspecting) adviser & their clients.
The MIS debacle may have been lessend if the likes of Timbercorp & Great Southern had been forced to stump up some hard earned as a protection against their MIS products failing.
What ever happened to the Compensation Arrangements review by Richard St John?
There are many great comments here, and most of the problems stem from one single decision made in 2002 when FSR was introduced. That was the decision to licence groups, rather than individuals. Artificially forcing a third party into the arrangement (the AFSL) is daft. The overused phrase is “Moral Risk”. You can thank ASIC for that, because it thought it would be easier to oversee a couple of thousand AFSL’s rather than 15000 advisers. And they’re still kicking goals aren’t they. When advisers can only be individually licensed, you can get rid of the crap, rather than the current situation where the AFSL is left holding the bag, the adviser moves on to some lower integrity option and the whole industry is left looking like Sh#T. For the time being, its looking more and more like a government funded pool, as an alternative to PI, might be a better way to get politicians focused on the unfairness of FOS, FSR and FOFA.
And the ambulance chaser lawyers, (who lie about no win no fee cases, making their clients take unwinnable cases to the supreme court, to try and get a settlement which means their fees are paid before their client receive a cent)… who make obscene “commission” on class actions (ie $50m+ COMMISSION on Black Saturday settlement alone – bank fees overcharging is next) are only starting to get a taste of the personal insurance industry and advertising on TV, litigation is just warming up my friends, just warming up!!!
[quote name=”Bob”]If the insurers were not paying claims they wouldn’t be pulling out of the market.[/quote]
Very nave Bob. Just ask around.
And if you are a planner or licensee – I would start to worry – especially if you get hit with a claim.
We have historically seen licensees with no PI exit with consumers left unprotected. Compulsory PI is not the problem – it is the extended powers under FOS that are scaring insurers. $400k rulings with no right of appeal and no right to due process.
If FOS was pulled back to what it was resourced to do ($5 – $30k claims) then insurers would be able to defend large payouts and protect advisers as well as consumers.
This is very clear message for the regulator but they just don’t want to hear it.
Who in their right minds would insure this industry? Seriously. You have the industry body deserting its members & just interested in selling courses & creating falsehoods to support its course flogging. Then you have a public which now knows that if any advice goes wrong they play dumb, point the finger at the adviser, say I didn’t realise the risk & lawyers or FOS will swiftly organise a refund. It’s the equivilant of drunk & drugged drivers winning claims because the roads are unsafe. I wouldn’t touch this industry with a barge poke either.
I wouldn’t doubt it…look at all the class actions going around. People are encouraged to make a claim for losses. Why would a PI insurer hang around for that? Dealer groups don’t like divulging detail of their PI policy either…could scare advisers away. Spending all day writing file notes and ROAs and not much else? Join the club.
If the insurers were not paying claims they wouldn’t be pulling out of the market.
No. I agree with the comment that the compulsory nature is part of the problem.
PI insurance policies are not worth the paper they are written on.
Do any of you really think that if you make a claim on the policy, the insurer will pay?