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.
Out of hand, strong possibility that will lead to very well paid prodct floggers and broke strategists unfortunately. This is the whole concern I guess
What does “24 months away from meaningful change”mean? Premiums to go sky high in 2 years? Premiums are already outrageously high. Yet another reason to get out of this ridiculously over regulated industry, with increasing risk and bank domination.
This article primarily blames the high rate of claims, for the increase in PI premiums. Successful PI claims indicate culpability by the FP’s litigated against. Again the cowboys are costing the rest of us increased PI premiums.
Unfortunately, too many investors have lost life savings, by set and forget investment strategies, or high risk investments recommended by FP’s for the high commissions on offer.
Get rid of the cowboys, and we will have less legislative interference, and lower PI premiums. Although, how often do you see premiums reduce??
Provide strategic advice and this will probably sort out the PI increases, client priority rule under best interest and conflicted rem issues. Clients can go to the banks to get a product and planners can be the professional advice providers.
So we are getting blamed for investment market performance (poor or lack of) but get criticised in many circles (including other planners of course) for charging higher fees on bigger portfolio balances for the extra risk involved. It’s getting all quite confusing really.
Will advice eventually be priced out of many australians reach due to the very high costs associated with running and dealer group.Continuing to raise the costs of the insurance just adds another unwanted cost.
Perhaps education of clients starting in school years about risk and return and taking responsibility for own actions may be a good place to also start from. Yes there are advisors who do the wrong things as well but Australia is now the second most litigious behind America. Not a great honour to have and yes its very costly.