Financial planning practices are facing professional indemnity (PI) premium hikes of up to 50 per cent this year, with rises unlikely to abate in the near future, a PI specialist broker for the advice industry has claimed.
Small to medium financial planning firms had generally experienced PI premium increases of around 30-40 per cent this year, Apex Insurance Brokers account director/branch manager Abraham Tavares told InvestorDaily.
"But in some cases I've also had increases of up to 50 per cent and we've had to say to the underwriter, 'look, the client has been with you for five years, they've had no claims, no notifications, therefore you shouldn't penalise them because the market is moving that way'," Tavares said.
The collapse of Storm Financial and Great Southern had also caused PI underwriters to become overly cautious during the renewal process, he said.
"What we're finding is on renewal the underwriters are asking a lot more questions, especially in relation to Great Southern and if any of our clients have got investments in those funds," he said.
"I'm finding the renewal process is a lot more difficult, but we're pretty much encouraging our clients to remain loyal to the existing underwriters."
Also, minimum PI premiums had risen as a result of ASIC's RG146 stipulations, he said.
"If the reinsurers are saying to the underwriters, 'you have to charge a minimum of $3000 per million', then the smaller planners that might have been paying $4000 are now paying $6500 to $7000," he said.
The soaring rate of PI premiums was set to continue for at least the next two years, he said.
"Over the next 12 months you'll definitely see a bit more of an increase and in 24 months' time I think it will still basically be the same," he said.
"I can't see it slowing down for quite some time until it becomes fairly profitable for the underwriter or if market conditions change.
"Planners should be budgeting an increase of 10 or 15 per cent every year until we get a new player in the market or the industry settles down a bit."
