It is expected that thanks to new regulations, professional indemnity insurance premiums for Australians will be increasing. The Australian Securities and Investments Commission (ASIC) enacted the new regulations which took effect on January 1st of 2010. Known as ASIC RG 126 Compensation and Insurance arrangements for Australian Financial Services (AFS) licensees, the new government regulations demand that licensees are covered by a higher standard of professional indemnity insurance.
Higher standard insurance policies usually lead to higher premiums, as logic would dictate. However, Jo-Anne Bloch, the chief officer of the Financial Planning Association (FPA), says that higher professional indemnity insurance premiums would only make a significant impact in the forthcoming two traditional periods for PI insurance renewals: the months of March and July.
Talking about the matter of higher PI insurance premiums for Australian Financial Services (AFS) licensees, Jo-Ann Bloch said that March and July are “usually when people seek to renew their insurance, and then they will work out whether they meet all the requirements and what it will cost to meet them. You can meet with all the requirements at a cost, and commercial insurers may just triple the premium.”
Jo-Ann Bloch has said that in addition to probable new professional indemnity insurance premium hikes for Aussies, various other issues within the industry are being analyzed on a constant basis. For one thing, the FPA has long wanted a review of the whole client compensation system.
According to Jo-Ann Bloch, “We have continually stated that since the [Parliamentary Joint Committee] recommendations [were published], we believe it is necessary to have a big briefing about how we are going to deal with retail client compensation, and that includes the Financial Ombudsman Service, PI insurance, and a possible post-event compensation scheme.”
Jo-Ann Bloch has said, in addition to her other statements on the matter, “Although the Financial Ombudsman Service has stabilised in terms of the way it conducts itself, the increased monetary limits have increased pressures on financial planners and their [professional indemnity insurance]. The difficulties in the market, RG 126, and various other things have put pressure on [professional indemnity] insurance. And now there is a call for a post-event compensation scheme. We need to take a step back and look at it strategically, not in a piecemeal fashion.”
There are other issues about premiums paid for PI insurance by Australian Financial Services (AFS) licensees besides those raised by RG 126. And often, these are simply personal matters that apply to certain individual licensees. Jo-Ann Bloch says about this, “I am sure you will find some businesses whose premiums have gone down. There are pressures on the system because of a number of different things that are happening, but it is bobbing along.”
Owners of professional indemnity insurance in Australia may want to demand that someone check into precisely why the governing body felt the need for the stricter regulations of RG 126 in the first place.
