The rising costs in professional indemnity (PI) premiums for a risk-based advice firm are significantly lower compared to that of a financial planning practice.
Despite the escalating PI costs the advice industry currently faces, life insurance dealer group Synchron does not expect to experience major increases in their PI premium this year, the group's director Don Trapnell told InvestorDaily.
"We've had an indication from our PI broker that our costs will not increase substantially this year. At this stage it looks like it will be a very minor increase, we're talking about a less than 10 per cent increase, and that's because 80 per cent of our business turnover comes from risk," he said.
"However, the same broker made the comment that financial planning practices are looking at a very strong increase in their premiums - 50 to 75 per cent increases are the figures they are talking about," he said.
Apex Insurance Brokers account director/branch manager Abraham Tavares said this was because PI is based on financial loss.
"Life insurance carries a different type of risk altogether, but with financial planning it's a little bit more under the microscope in terms of people can actually see where they have made a financial loss," he said.
"I've seen some clients and their increases in premiums have only been 5 to 10 per cent, but that's because they do a lot of wrapped accounts and a lot of portfolios, which carry very low risk.
"But then I've seen clients where they do tax-effective schemes and margin lending and that's when you cop the big whack in premiums."
