The overhang of the GFC is one of the factors contributing to a “growing class action mentality” in Australia that could see an increase in professional indemnity (PI) premiums, he said.
“We’ve reached a point in time where those claims need to be brought. If you assume the GFC commenced in 2007 or early 2008 you’re coming up to limitation period now,” said Mr Connellan.
There has also been an emergence of litigation funders which has created “fertile ground” for class action claims against participants in the financial services sector, he said.
“The ability to bring lots of small claims together … creates a new area of litigation that people who are insured by PI insurers have to deal with,” he said.
Moray & Agnew conducted a survey of 156 senior professional indemnity and D&O (directors and officers) insurers, brokers and advisers at the Australian Professional Indemnity Group annual conference in Sydney last week.
More than one third (38 per cent) of respondents said they expected PI premiums to increase.
Twenty-three per cent of respondents said premiums were likely to increase by 10 per cent, and 15 per cent of the professionals surveyed thought the increase would be in the range of 10 to 20 per cent.
On the bright side, 23 per cent of respondents to the Moray & Agnew survey believe the Future of Financial Advice (FOFA) reforms will lead to better practices, resulting in fewer and less significant professional indemnity claims.
“FOFA will tighten up an industry that, without being critical, wasn’t that well regulated until recently. That should reduce PI claims because you’ll have more professionals in the industry,” said Mr Connellan.
But 19 per cent of the respondents said the heightened compliance requirements contained in the FOFA reforms would push up the cost of financial advice.
Only nine per cent of those surveyed were confident that the FOFA reforms would push out rogue traders, and 13 per cent of respondents thought they would squeeze small and independent players out of the market.
Respondents said the financial advice market was the profession most at risk when it comes to high claims activity (35 per cent), followed by directors and officers (27 per cent) and accountants and auditors (14 per cent).
