Why PI insurance premiums are rising

A lack of underwriting capacity and the new licensing regime have caused professional indemnity premiums to skyrocket for advisers, according to a leading insurance broker. 

Andrew Ford, head of financial and professional risks at Crombie Lockwood, said external global factors and the introduction of the FSLAA regime had caused the issue for brokers.

Advisers report professional indemnity costs of $1,000 to $1,500 under a group FAP, and as high as $4,500 for those with their own FAP licence. 

Ford said: "The whole professional indemnity landscape has been hardening for the past two to three years, driven by poor loss ratios. Lloyd's [of London] syndicators have stopped underwriting over the past 18 months because they don't believe they can return their books to profit. There has been historic under-pricing and increased claims activity."

"The key areas of professional indemnity where premiums have increased are anything in the financial adviser space, including mortgage brokers, and anything construction-related. Those two areas have been hit with 20-40% increases year on year, for the past two years."

The FSLAA regime seems to be a major factor in this market, Ford added. Those without coverage already could find it tough to get coverage, he said.

"The FMA now has considerably more clout in terms of investigating brokers. Insurers are taking a step back increasing prices in many cases. If a mortgage broker doesn't have insurance in place, it will be very difficult for them to provide terms ... Insurers are continuing to push prices up and for risks they are willing to underwrite, they are asking for a lot more information."

Ford said statutory liability insurance, which covers advisers for defence costs for innocent breaches of an act, had also risen.

Amid rising insurance costs, the insurance specialist told advisers, particularly those with their own FAP, to sort their affairs early. 

"My message for brokers would be, think about joining an established network/cluster, with a good reputation and good standing in the market. Also, start negotiations with your broker early on.

He added: "Don't leave your renewals to the last minute, as it is taking insurers a long time to get back to brokers, with everything going up the underwriting hierarchy. If you leave it too late, it's not great for anyone."

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