Notwithstanding the fact that there are only about five core insurers in the professional indemnity (PI) insurance market and some smaller advice firms find it difficult to get cover, the Australian Securities and Investments Commission (ASIC) believes the PI market is stable.
ASIC deputy chairman, Peter Kell, has told a Parliamentary Joint committee that the regulator is currently examining the PI Market and has acknowledged that it does not represent a “magic bullet” with respect to dealing with consumer claims.
Indeed, he said that problems with the PI regime tended to emerge “just when those claims become most acute — that is, where you have multiple claims”.
“That is why we have seen a growth of unpaid decisions through the Financial Ombudsman scheme,” Kell said. “They typically arise where a firm has collapsed and the PI insurance is unavailable to pay those multiple claims.”
He said that where PI was concerned, ASIC believed that it played an important role to “deal with those one-off claims that advisors may have to deal with” but added that ASIC had also suggested in submissions to various inquiries that it believed there was scope for a targeted last resort compensation arrangement “to deal with the particular sort of situation where PI is not actually going to work that well”.
“We are doing a bit of work on the PI insurance sector at the moment to get an idea of levels of availability and cost, and the preliminary results are that the market is fairly stable,” Kell said.
However he acknowledged that there were “not a lot of providers” and that it could be difficult for some smaller firms to get PI cover”.
“There are about five core insurers in the market, and we will be coming out with some results soon that help to provide a bit of a picture as to how that market is operating at present,” Kell said.
