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Professional Indemnity Insurance for Financial Planners

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We were interviewed by Kaplan Professional about Practical PI Considerations for the Financial Planning industry which can be viewed here.

Everest Risk Group is a specialist in Professional Indemnity insurance for Financial Services firms. We have over 100 clients with an Australian Financial Service Licence (AFSL) and understand this segment thoroughly.

At Everest Risk Group Pty Ltd, we work with our customers to present your individual risk profile to potential insurers in the best possible light. A proposal form alone is not enough to secure the best coverage or premium outcomes. Our tailored approach to understanding the Licensee’s business intimately and conveying that detail to the insurance market achieves superior and timely negotiated outcomes on both coverage and premium pricing. The goal always being to present your practice as superior risk to the rest.

Am I required to carry Professional Indemnity Insurance as a Financial Planner?

Professional Indemnity Insurance can protect you against legal action initiated by your clients if you make any errors or are negligent whilst performing your duties as a Financial Planner. Your Professional Indemnity policy should cover you for negligence, fraud or dishonesty by directors, employees and other representatives of the licensee. Financial planners providing advice to retail clients, you are required to hold a minimum amount of Professional Indemnity (PI) Insurance in order to meet your ASIC Obligations.

What Professional Indemnity Limit am I required to carry as a Financial Planner?

Your ASIC Obligations are such that if your total revenue from financial services provided to retail clients is $2 million or less, you must have a limit of at least $2 million for any one claim and in aggregate, with legal costs in addition to the limit. If your total revenue is greater than $2 million, minimum cover should be equal to actual or expected revenue from financial services provided to retail clients (up to a maximum limit of $20 million). See ASIC’s regulatory guide 126 Click here for more information.

What affects Financial Planners PI insurance premium?

The insurance market for professional indemnity insurance to financial advisers continues to be difficult and unprofitable for most insurers. As a result, insurers/underwriters are leaving the space or increasing premiums to ensure this market segment is profitable. Consequently, all financial planning firms, regardless of their claims history, are being affected with the same blanket approach to setting Professional Indemnity insurance premiums. Its only by carefully distinguishing the risk management and risk profile of your practice to the insurers, can this blanket approach to premium setting be overcome.

At an individual Licensee level, there are a number of characteristics of your business which insurers will consider when assessing premium rates. Whilst each insurer assesses risks differently; however broadly speaking, insurers will all look at the following generic areas of an AFSL’s business when calculating the premium:

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turnover
risk profile of the licensee’s business,
competency and experience of management and staff, and
the level of excess and required limit of indemnity.
quality and experience of staff
controls and systems in place to consistently manage staff and any Authorised Representatives
complaints and claims history

What are some areas where claims arise?

Incorrect or inappropriate financial advice for the clients circumstance
Inappropriate estate planning
Deceptive or misleading conduct
Privacy breaches
Failing to recommend or arrange appropriate risk insurance
Employee fraud and dishonesty

What do I need to look out for when purchasing Professional Indemnity Insurance?

When comparing Professional Indemnity insurance policies, it is important to go beyond the cost as the only decision-making tool. Things to consider include:

Is the coverage specific to your industry and does it cover all the intended exposures listed above?
Does the insurance broker and the proposed insurer understand your industry and specialise in your industry?
What are the policy exclusions? Are there any that could affect me for my particular practice?
What is the excess and is it affordable for my practice to pay at the time of claim?
Is my excess applicable for each claimant or each claim? Each claimant is an onerous and inferior position given potential for class actions/multiple claims from related matters.
What support is provided by the broker and insurer to assist me at claims time?
Does the policy restrict claims to an approved product list only?
Does it cover sub-contractors and any Authorised Representatives?
Does it provided appropriate coverage for claims brought before external dispute resolution bodies?
Is the policy compliant with the regulations set by ASIC’s Regulatory Guide 126?
Does the policy contain a broad ‘Civil Liability’ insuring clause? Civil Liability covers you for claims that arise from strict liability where negligence is not always a factor. Some polices require a negligence claims trigger which is an inferior coverage position.

There is a lot to think about, so it is vital you select and broker/adviser that can assist you with the selection of the correct Professional Indemnity product for your own individual needs. No two policies are the same, and it is usually only an experienced adviser/broker than can often identify the potential weakness in a particular Professional Indemnity policy wording.

What is the Everest Risk Group difference?

A boutique and individualised service – no cookie cutter approach to providing advice or Professional Indemnity product recommendations. Our boutique offering means we are always striving to maintain excellent service standard, especially when it matters most, at the time of claim
Advice not just price – we will provide a detailed report on the premium cost and highlight the coverage, relevant exclusions, terms and conditions that matter most to your practice. The goal here is for you to understand the coverage purchased before a claim occurs
A valued partnership – we seek to work with you long-term as an extended part of your risk management team.

To discuss these matters in more depth or obtain a complimentary review of your current PI insurance program, contact Robert Huntley.

General Advice Warning

The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.

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General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.

Robert Huntley, Everest Risk Group Pty Ltd, AFSL 240549

This article originally appeared on Everest Risk Group's Latest News and has been published here with permission.