There is “quite a bit of anxiety” in the adviser market regarding PI insurance, Philip Anderson, chief operating officer at the Association of Financial Advisers (AFA), told InvestorDaily.
Costs of PI insurance are increasing and advisers are also facing challenges with availability of insurance, AFA chief executive Brad Fox told InvestorDaily. Mr Fox said this particularly applies at the licensee level.
“There seems to be some difference in the availability and cost structures that are being offered between different size licensees,” Mr Fox said.
“The insurers I think are being more proactive in assessing each licensee group as to the level of risk they believe exists within that licensee … I think the stringency that they’re going through to arrive at pricing and terms and conditions is increasing.”
Boutique advisers are being unfairly affected by these increases, according to Boutique Financial Planning Principals Group president Wayne Roggero. Mr Roggero said rising premiums are a “bitter pill to swallow” for advisers who haven’t made a claim.
“I think part of it is there are a number of good financial planning firms in the smaller end of town that insurers just bundle as all being the same and that may not be fair,” he said.
Mr Roggero said if the cost of PI insurance continues to increase, parts of the independent adviser market could be forced to cease operations.
“If it becomes too expensive to operate as a sole independent you have to increase your costs, and then you price yourself out of the market,” he said.
There have been several suggestions concerning the reasons for rising costs and restricted availability of PI insurance, including lack of competition within the insurer’s marketplace and concerns over the outcomes of the Future of Financial Advice (FOFA) legislation, with the wider market now wearing the costs of incidents in particular parts of the market.
One independent broker said prices have gone up “significantly” over the past five years.
Smaller, independent licence holders in particular have suffered increases of “at least 50 per cent” from market lows, he added.
InvestorDaily spoke to two self-licensed advisers who both said they had seen huge increases in their PI premiums recently.
The first adviser said his PI cover had increased by 60 per cent on last year without ever having made a claim, and if anything, his firm had actually tightened its risk management over the past year or so.
Another adviser said his premiums had more than doubled from $12,000 last year to $25,000 this year, also without having made a claim.
The PI market in Australia is currently only serviced by four major underwriters – Vero, Dual, Chartis and Axis. InvestorDaily approached all four but none were able to provide comment before deadline.
