Confirmed: How PI premiums have hit financial advisers
New data has confirmed just how hard professional indemnity (PI) premium costs have been hitting financial advisers and others in the financial services sector.
Amid confirmation in the Federal Budget that the Government will be relying on the Australian Securities and Investments Commission funding levy to help underwrite some of the cost of the Compensation Scheme of Last Resort (CSLR) and greenwashing measures, new data from the Australian Prudential Regulation Authority (APRA) has revealed how advisers and others have faced almost a decade of rising PI premiums.
The APRA data, contained within its National Claims and Policy Database analysis, pointed to the average PI premium growing by 27% since 2015 but higher for those working in financial services.
In fact, the APRA analysis said that accountants, financial planners and brokers/dealers had all had an average premium increase of at least 40% since 2015.
“Total premium volumes grew modestly over 2009 to 2016 at an average increase of 3.2% p.a. Premiums volumes then escalated over 2017 to 2020 at an average increase of 12% p.a. – increasing from $0.9bn to $1.4bn,” the APRA analysis said.
The APRA analysis included financial advisers on a list of occupations which had encountered significant industry premium movements.
Looking at the “financial’ group, it said average premiums increased by a similar amount across most occupation subgroups.
“The largest increase in premiums was for Brokers and Fund managers (also accompanied by a large increase in risk counts). While average premiums also increased significantly for Financial Planners/Advisers – this was accompanied by a large reduction in risk counts (which may instead be indicative of changes in measurement of risk counts rather than price increases).”
Once it wasn’t an ASIC requirement for advisers to carry PI to be licensed. Now we have 10,000 less advisers, with the disgraceful situation of over 1 million consumers stranded as orphans on Australian investment platforms without access to advice. Govt is the problem
This is one of the reasons I’m about to become another statistic.
Interesting about PI premiums yet a big reduction in AFCA complaints for advisers. What is happening here? Are licensees/PI just settling before it gets to AFCA? Be interested to know the profitability of Insurers that offer PI premiums for Advisers. Could be another stitch-up.
Reckon it’s a stitch up. My own premiums are up almost 50% whilst client numbers are down, FUM is slightly up – never had a single complaint…
So, somehow I’m at least 50% more likely to have a claim than three years ago…
Dear AAB,
The current situation is that most Licensees that carry a Group PI have at least a $20,000 excess. Even when you prove a claim has no merit and AFCA finally agrees, the Licensee still has to pays the $20,000 excess to cover the legals in the complaint. And here’s the rub, if the complainant doesn’t accept the AFCA determination, they are free to appeal. All this ways into the ultimate cost.
In some cases where the cost of settling a complaint is less than the excess payable by the Licensee, its prudent to settle.
That’s what’s wrong with the present system. The complainant is up for no costs and therefore has nothing to lose.
Now you know why there are fewer PI insurers and those that exist can charge whatever they deem appropriate.
Why don’t the associations offer pooled PI cover like in the Legal, Mortgage Broking and Accounting worlds? This plus the ASIC Levy and COSLR funding means its going to be a HELL OF A LOT MORE EXPENSIVE TO PROVIDE ADVICE