Only a small number of professional indemnity (PI) insurance players now operate in the Australian market and they appear to have the advice industry cornered with higher premiums, according to a chief of a financial services firm.
"Premiums have escalated for two reasons: one is a market cornering and the other is on the suspicion that there's going to be so many more claims now due to several corporate failures," Principal Edge Financial Services chief of operations Lex Goldsmith said.
The compressed market was not helping out the "cleanskins", Goldsmith said.
"In other words, the small firms, cleanskin or not, are subsidising the larger firms on the basis that the cost per adviser is going up at a much higher rate," he said.
"I feel resigned to the fact that we are being held hostage to whatever these providers want to charge and I just can't help feeling that there could be a better way of setting up a fairer system."
Principal Edge recently renewed its PI insurance contract and as a small practice Goldsmith said it felt somewhat disadvantaged during the tender process.
Consequently, Goldsmith said there needed to be a standardised industry-accepted PI questionnaire for smaller practices and another for larger dealer groups in order to address the relevant issues pertaining to each.
"There needs to be collaboration between the FPA, advisers and the PI providers to identify a set number of key issues that they need to understand before they adequately underwrite, rather than putting us all in the one pool," he said.
However, FPA chief executive Jo-Anne Bloch said its Pro PI service was already about industry collaboration among its members, PI brokers and the underwriting community.
"It's still early days and we can't actually be the silver bullet, but we have set about creating a tri-partisan relationship with an appropriate underpin, which is the ASIC guidelines," Bloch said.
