Inflation remains a pressing concern for Australia’s mortgage brokers, as the Reserve Bank has not ruled out further increases after leaving the cash rate on hold in February.
While brokers will no doubt continue to focus on their clients in the wake of this news, they may also want to consider how insulated their businesses are from cost-of-living pressures.
“Skimping on business insurance to save money might be tempting, but mortgage professionals who do not have adequate cover for their businesses are doing themselves a great disservice,” says Brad Miller, General Manager at BizCover.
“Underinsured risks, either by having too little cover or missing key policies, could cause severe financial stress or even put you out of business.”
Reviewing your Professional Indemnity cover
When conducting an insurance review, Professional Indemnity is the logical place for brokers to begin.
Professional Indemnity (PI)*, an industry requirement for mortgage brokers, protects business owners from the financial impact of actual or alleged negligence arising from the delivery of a broker’s professional advice.
The Mortgage & Finance Association of Australia (MFAA) requires members to hold a minimum of $2 million in PI cover for any one claim and $2 million in the aggregate. Members must also have at least 12 months of run-off protection.
However, this may not suit every broker’s business.
“Each broker is different, and so are their insurance needs,” says Miller. “Thinking about your business size—in terms of annual turnover, number of clients, and if the policy covers multiple employees—can help you determine whether the minimum PI requirement provides enough protection for your business.”
For brokers wanting to exit the industry, run-off cover is another important consideration when reviewing their PI policy.
Run-off insurance financially protects against claims that arise after a broker’s final date of trading. Because client claims may be made months or years after they’ve interacted with a broker, run-off cover provides essential protection for those selling their business or retiring.
Brokers should consider the risks and likelihood of a risk occurring to determine how long to keep their run-off cover in place.
Managing uncovered risks
Professional Indemnity covers some of a broker’s largest risks, but they might have other exposures that also need to be addressed.
“There are many moving parts when it comes to managing a business,” says Miller. “Keeping up with changing employment regulations can be challenging, and it’s easy for missteps to occur.”
Depending on their business structure, mortgage brokers may also consider Management Liability* cover, which is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business. This can be crucial for shielding brokers against the financial impacts of unfair dismissal, harassment, and other statutory claims.
As brokers continue to rely on technology to run their businesses, Cyber Liability* insurance may also be useful.
“Many small businesses underestimate how vulnerable they are to cyberattacks, online scams, and data loss,” says Miller. “But even commonplace technology like email, mobile phones, and websites could put them at risk.”
Cyber Liability covers losses from claims arising from data breaches, business interruption and remediation costs following an actual or threatened data breach. These policies help brokers cover many costs associated with cyber incidents, including investigating incidents, recovering data, and notifying clients.
Importantly, Cyber Liability policies also provide access to 24/7 incident response services that can help brokers contain cyberattacks, minimise damage, and recover faster.
Miller says that business insurance should always reflect a business’ current risks.
“Regularly reviewing your business risks and cover can help you spot areas where you are potentially underinsured. Having adequate cover in place can provide peace of mind knowing you have a safety net in place should you face a claim.”
For mortgage brokers looking for new cover or want to compare the rates they are paying, BizCover can help. Visit bizcover.com.au to compare insurance options that meet MFAA requirements and see if you can save.
*This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.
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