Insurance brokers are cautiously optimistic that the professional indemnity market will finally reach its nadir over the next 12 months and start to soften mid-to-late 2021, providing much-needed relief to advisers and licensees paying a minimum of $10,000 per head for annual premiums.

There are no guarantees, however, with the market still well short on suppliers. Insurers are reluctant to take on extra risk when the pandemic is decimating the economy, experts say, and while AFSL holders are under heightened pressure from the corporate regulator.

“It’s the hardest I’ve seen it in 20 years,” says GSAIB manager of professional risk, Ryan Neary.

Neary points to the withdrawal of insurers in the market as being behind the PI insurance malaise, as well as the Hayne royal commission which has inhibited insurers from taking on advisers.

“Insurers just seem to be writing checks in this case and that’s why premiums have increased so much,” Neary says.

GSAIB’s Ryan Neary

The pandemic has taken a hard market and made it harder, explains Robert Huntley from Everest Risk Group. “Obviously Covid-19 has made the insurers more nervous,” he says.

Huntley adds that it’s not just planners feeling the brunt of a stark PI market.

“The whole financial services market is in the same boat in terms of cost and accessibility,” he says. “Fund managers, private equity, stockbrokers, they’re all experiencing the same issues. The insurance market globally is going through a very hard cycle.”

The average annual PI insurance cost for advisers has doubled in recent times, Neary says.

“A few years ago planners could get a quote for $5,000 with no excess. They can still get it for $10,000 but the excess is going to be between $15,000 and $20,000,” he reveals, adding that some advisers are still unable to find cover. “Every industry and most professions have had their issues, and the big overarching issue is Covid-19; insurers are unwilling to write in new risk unless they have to.”

‘It just needs time’

Despite the gloom, brokers see light at the end of the tunnel for advisers and the broader financial services markets. If it comes, however, it likely won’t appear until mid-to-late next year.

“As the market turns, if we get one or two more insurers it will eventually come into a softer market,” Huntley says. “Some are saying middle of next year, but it’s difficult to predict.”

The entry of new providers into the market is key. In February this year MKM Partners senior partner Oscar Martinis predicted a relatively similar timeline, noting that a number of Lloyds syndicates withdrew from the PI sector in 2019, on top of providers Dual Australia, Vero and Axis in the preceding years.

Martinis made the reason for the exodus clear: “Losses, losses and more losses,” he said.

Huntley says these losses continued through the royal commission and in the aftermath, but as regulatory pressure has forced compliance standards to lift the level of claims has started to decline, which will eventually manifest in more confidence from insurers.

“Compliance has improved out of sight over the last few years but they’re playing catch up. Risk management and compliance has improved significantly but the horse had always bolted,” Huntley says.

“It just needs time,” he continues. “In the past two to three years I think claims have started to drop, it’s just a matter of waiting for that to filter through to prices. If the insurers are making money it’ll create more options for AFSL holders.”

According to Neary, a more robust licensee industry could be a factor in turning the cycle.

“I think the increased compliance and more of the planners moving into better dealer groups with stronger frameworks… all of that is going to improve the industry in terms of PI,” he says.

For the market to return to a competitive environment, however, Neary reckons insurers will need to be sure that re-entering the fray is worth their while.

“Insurers are going to have to see value coming into the market so they can write business profitably,” he says.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
One comment on “PI insurance market tipped to turn mid-to-late 2021”
  1. Avatar Jeremy Wright

    It would be interesting to see what the actual claims experience has been and where the claims have been coming from.

    It is too much of a broad brush approach to say PI Insurers are writing cheques.

    How many cheques, the amount of each cheque, the circumstances and whether the Insurer defended the action, or just paid out to close the claim, etc.

    The ability for Advisers to be able to work, is based on their ability to attain PI cover, which can lead to a conflict of Interest, where Insurers can charge what they want.

    The Government continually state that advice is crucial for Australians, yet the barriers and cost burden that Advice practices currently endure, is a main reason for the reducing adviser numbers.

    The Government got the Industry into this mess with their idolatory acceptance of flawed Royal Commission findings and a Regulatory system that needs to be turned back towards a semblance of reality.
    So, the Government should create the environment to ease the ridiculous PI Insurance fiasco that has added more stress to advisers on top of everything else they endure.

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