Offshore PI insurance not worth the paper...
Financialplanners are facing alarming personal liability risks despite having professional indemnity (PI) cover due to an influx of unauthorised foreign insurers accessing the Australian market.
There is a split between those planners consciously opting for unauthorised foreign insurers, predominantly from the Philippines and the Solomon Islands, and those planners unaware their policy may not be worth the paper it is written on.
“The difference in price between some of these unauthorised insurers and the more reputable authorised ones could be up to three to four hundred per cent, and this percentage is the difference between getting paid or not on a claim,” Crown Insurance managing director Brian King says.
According to King one of the reasons unauthorised foreign insurers are being offered by some brokers is because clients don’t want to pay the premiums offered by the authorised underwriters. However, for many planners, they may be unaware how their policy is ultimately underwritten.
Under theInsurance (Agents and Brokers) Act1984, brokers are obligated to reveal the details of any unauthorised foreign insurer they commission in relation to a contract with a client, says Aon Risk Services Australia deputy chairman and National Insurance Brokers Association board member David Farrell.
“Whether in fact insurers do that, and I have no evidence to suggest that they don’t, is another question,” Farrell says.
However, according to Farrell even if the broker reveals details of the underwriter, financial planners are not in a position to know whether the underwriter in question is financially sound.
“The planner may assume the broker has satisfied himself to the financial security of the underwriter,” he says.
King argues if a financial planner relies solely on the broker in this instance then “it would be under false pretences, as you cannot make those assumptions”.
To reduce the risk, King says planners should bite the bullet and pay the higher premiums of the authorised insurers, which he argues are not high, relative to other markets.
“Planners paying PI premiums have got it hard wired into their brain that the premiums they used to pay three to four years ago were the proper premiums and that anything else is a rip off.
“We are still paying lower premiums than the rest of the western world. FAI and HIH were buying market share and you see what happened to them as a result,” he says.
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