Overseas insurers hesitant to insure Aussie financial advisers
The Australian financial advice industry needs to demonstrate to overseas insurers that it has improved or face increased professional indemnity costs.
Speaking at the FPA roadshow in Sydney, Dean Pinto, partner at law firm Wotton and Kearney, said actions prior to the Royal Commission had deterred insurers from insuring financial advisers.
It was becoming more difficult for advisers to obtain insurance as insurers were exiting the PI market with AIG announcing it would exit in September, following previous exits by Dual Australia, Vero and Axis.
“There is a genuine concern around insuring financial advisers and large dealer groups, the focus is on past losses by authorised representatives. There is a greater risk when insuring financial advisers.
“There are a lot of mum and dad investors in Australia, a higher number than globally, which gives insurers cause for concern that once the COVID support is stopped, there will be a growing number of claims to follow.”
David Martin, director of professional lines insurance at insurance broker AB Phillips, added: “We’re getting to a point where underwriters are becoming very, very selective and that adds another dimension to the scarcity of capacity”.
The biggest challenge, Pinto said, that was deterring insurers was rogue operators, although he acknowledged many of these advisers or firms had since left the market.
“Rogue operators are the obvious source, some insurers cannot make those losses back so they have decided to exit the market. One bad authorised representative (AR) can cost a lot especially if the advice model is a one-size-fits-all model or a cookie cutter approach, that can be costly.”
He said there had been a lot of regulatory change in Australia lately but, overseas some “were more aware of it than others”, putting the onus on Australia to demonstrate how it had improved.
“Financial planners need to help educate their insurers on the steps that have been taken to improve regulation and compliance. They are not all across that overseas, that there have been these improvements.”
AUTHOR
Laura Dew
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