AIOFP warns 'PI clouds are gathering' following AIG's departure

AIG is set to cease offering professional indemnity (PI) insurance to financial advisers in the third quarter this year, a product line that has been under pressure for years.

The looming withdrawal has the Association of Independently Owned Financial Professionals (AIOFP) worried.

In a letter sent to its members on Monday, the association’s executive director, Peter Johnston, warned of “widespread detrimental effects” AIG’s departure could have on pricing and cover availability across the industry.  

“AIG were particularly active in the larger dealer group space, considering these groups are perceived to be high risk by the few remaining underwriters in our market, the future looks bleak for them - and that’s just not price but cover availability as well.

“The worst-case scenario if no other underwriter steps into the market are large practices may have to hand back their AFSL to ASIC if they do not have the resources to self-insure,” Mr Johnston said.

Scarcity of PI cover in the advice market has been a key issue for advisers for some time.

At last year’s AIOFP Conference, GSA manager of professional risks Ryan Neary stressed that PI cover was becoming increasingly difficult for advice firms to obtain. He revealed that many of the remaining insurers in the market were 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.”

At the time, Mr Neary said AFCA’s consumer-friendly complaints services was partly to blame.

“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.”