Adviser PI issues not our remit: ASIC

ASIC provided responses to questions on notice from Coalition MP Bert van Manen, and new parliamentary joint committee chair Andrew Wallace around the state of the PI market for advisers and whether it was engaging with government on any potential issues.

“It seems to be that more and more businesses and professions are struggling to find quality, affordable, professional indemnity insurance. If the finance sector, which is certainly within what we’re talking about here, can’t get property valuations done, where do we go from there?” Mr Wallace asked ASIC deputy chair Karen Chester at a recent hearing of the committee.

Responding to further questioning around whether ASIC was “alive to the issue” of the scarcity of PI cover in the advice market, Ms Chester said she was “not personally aware” that gaining insurance was a problem for licensees.

However responses to questions on notice indicated the regulator was “aware of concerns relating to the availability and cost of professional indemnity insurance for various sectors, including those that ASIC regulates such as financial advisers”.

“ASIC does not regulate the pricing or availability of insurance in the market. Different market sectors will be affected by economic conditions and market cycles which will affect their risk profile, and the consequent price and availability of insurance,” ASIC said.

“These are policy matters for consideration by the government. We monitor market conditions through regular industry engagement, and we liaise with Treasury and APRA on these matters.”

The comments come following remarks from GSA manager of professional risks Ryan Neary at the recent AIOFP Conference that PI cover was becoming increasingly difficult for advice firms to obtain, with the remaining insurers in the market offering restrictive terms and excess levels that were pricing many smaller licensees out.

“Over the past five years we’ve seen insurers drop off the ledge – a lot of those are London based and got removed a couple of years ago when Lloyd’s [of London] did a review and identified that PI insurance was their second biggest loss leader globally,” Mr Neary said.

“There are only a couple of syndicates left writing this class of business, but they’re only an option for the larger guys because we’re seeing the Lloyd’s insurers apply minimum excess levels of $250,000 up to $500,000.”

Mr Neary said a key reason for this was the establishment of the consumer-friendly AFCA complaints service, which UK-based insurers were not willing to participate in.

“Lloyd’s want to get away from working losses and one of the major items that contribute is AFCA,” he said.

“What they don’t want to pick up are AFCA matters because they see when an item goes to AFCA, 99 per cent of the time it gets found in favour of the consumer, even where the financial planner has done nothing wrong.”