COVID crisis adds to ‘worst PI market in 20 years’

GSA manager professional risks Ryan Neary told ifa that the current uncertain economic outlook was causing the few PI insurers left in the Australian advice sector to reassess their appetite for risk when it came to equity exposure.

“There are five main insurers that are insuring planners at the moment, and out of those five you may have three that have had a terrible loss history on claims arising out of clients being invested into direct share portfolios, therefore their actuaries say they have to look more closely at this area,” Mr Neary said.

“They are looking at historical data and claims analytics, but also moving forward with COVID and what is happening to share prices in the majority of industries where large percentages have been wiped off the share price. 

“Insurers are looking at their portfolio a lot more closely and saying the future doesn’t look that great in the economy because there's so much uncertainty, therefore we do not want the risks we’re taking on to be overly leveraged in terms of equities either locally or overseas.”

Mr Neary said PI insurers would typically only allow 25 to 30 per cent of their portfolio in the advice sector to be practices with a lot of direct equity clients, meaning planners would have to jump through many more hoops in order to convince the insurer to take their business.

“We are starting the renewal process for clients about four months out whereas historically it’s been started two months out – the reason for that is identifying what insurers want to draw down into, and allowing clients to present to insurers why they have clients in direct shares and why they believe it’s a much better risk than having them in property or a managed portfolio,” he said.

Mr Neary said the PI market in general for planners was “the worst it’s been for 20 years”, with some practices seeing as much as a 250 per cent rise in premiums over the last two years.

“What that means is insurers have become a lot more selective of what business they can write and what types of risks they can deploy capital to,” he said.

“The average [premium] increase we’re seeing for planners is probably about 25 to 30 per cent, but we have seen increases over the past two years of up to 250 per cent, so it’s a broad range and it depends on how weighted you are in these areas that insurers deem to be problem areas.”

Mr Neary said practices that used MDAs and dealer groups with larger adviser footprints were also notoriously difficult to insure.