Last week, the corporate regulator removed the requirement for Australian financial services licensees (AFSL) to obtain automatic run-off cover.
It has previously been the case that AFSLs were required to obtain PI insurance policies that included 12 months automatic run-off cover from 1 January 2010.
"ASIC has decided to remove the requirement to obtain automatic run-off cover as it is not available to AFS licensees in the current insurance market," the corporate regulator said last week.
"We will continue to monitor the availability of automatic run-off cover and may reassess our position should the market soften and automatic run-off cover become available."
Rumours within the industry suggest ASIC's decision to back down on the cover came as insurers made unofficial threats to exit the financial services industry.
For too long, murmurs from the brokers and insurers of financial planners have indicated it is too risky to offer cover for this section of the market.
In the wake of Storm Financial, Great Southern, Timbercorp and even the dim light of Westpoint, insurers have been hammered by claims.
Financial advisers and AFSLs have also been heavily hit when actual claims are made.
A number of AFSLs have been dragged through the mud due to the new alignments with financial planners.
It has been the case that if an adviser moves dealer groups and a claim is lodged against the adviser, the AFSL is, in some cases, now the licensee responsible for the claim.
There have also been cases where AFSLs have managed to dodge a bullet by closing up shop, only to open up under a new brand shortly after.
While there may not always be a negative motive behind such a move, the smell of a collapse can mean irreversible damage to a company's reputation and brand.
On the flipside, there have also been cases where advisers have been tarred with the brush of poor advice when they, in fact, had nothing to do with it.
In this case advisers are finding themselves unemployable just merely because of their connection with a failed group.
On the plus side, ASIC's decision will no doubt help keep premium rates for PI down as the extra cost associated with run-off cover will no longer need to be forked out.
What is your reaction to ASIC's decision?
Do you think it will be a benefit for the industry?
How will the client end up without run-off cover?
