Professional Indemnity insurance woes set to continue for financial planners

The professional indemnity (PI) insurance market has been exceedingly difficult for Financial Planners over the past twelve months. We can expect to see continued high premiums and capacity issues for the foreseeable future, according to David Martin, Director of Professional Lines at AB Phillips Pty Ltd.

The primary issue, according to Martin, is the unprecedented reduction in insurance capacity over the past 18 months. “It started with the exit of the majority of Australian underwriters who were prepared to write Financial Planners’ PI including CGU, Dual, Vero & Allianz amongst others. This was sustainable for a while as there was a body of underwriters in Lloyds who were comfortable to ‘take up the slack’” he says.

However, in the second half of 2018, Lloyds released financials showing total losses over the past two years of AU$5.5 billion - that’s billion with a capital ‘B’!

Lloyds response was a brutal form of surgery – Underwriters were given 4 months to prove they could make their books profitable or, worst case, they would be ‘moved out’.

“So we have now been caught in something of a perfect storm” says Martin, “with Australian capacity already limited, and suddenly Lloyds underwriters either choosing to exit altogether or having to raise their premiums by, in some cases, up to 50%”.

Brokers have advised that from a high of 15 Lloyds syndicates three years ago, there are only 5 left who have the ability and the willingness to continue to write Financial Planners.

“It will correct itself” he says. “Improvements in risk management will reduce claims and this factor, coupled with higher premiums will drive profitability back into the sector. As a result, underwriters will inevitably flow back into the market chasing the higher returns”. It’s a classic case of supply and demand and puts downward pressure on prices.

“The good news is we are just starting to see some interest from underwriters not presently exposed to the market” says Martin. “The bad news however, is they don’t move quickly and it’s going to take the next 18 months to two years for a noticeable improvement”.

While PI insurance is mandatory for licensed entities in Australia, it seems attaining it has never been more difficult.

However, there are ways you can help. For licensees and self-licensed practices looking for PI insurance, the key to finding decent coverage in this environment is your ability to demonstrate a lower risk profile.

“Underwriters want to see submissions from Planners who are not just paying lip service to risk management and compliance. You need to be focused on it, and have it engrained into your processes. In addition, if you have had claims or notifications in the past, you must be able to show what actions you have taken to ensure you won’t have the problem re-occur” Martin says.

“At AB Phillips that’s where our focus lies now – helping our clients weather the storm by lowering their risk profiles so PI doesn’t send them broke. Convincing underwriters that Planners are a viable risk can be a tough sell, but so far, we’ve had good success”.

For further information on professional indemnity insurance contact David Martin on 1300 685 606 email enquiries@abphillips.com.au


AB Phillips Pty Ltd, ABN 91 007 075 934, Australian Financial Services Licence No. 234457.
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