The announcement by NZI that it will restrict its professional indemnity insurance to FAPs with three or more advisers will impact hundreds of sole trading financial advisers says Clinton Stanger, a member of Insurance Advisernet and owner of Curated Risk.
“Under the current regulatory regime NZI writes policies for individuals, but under the new regime from 15 March they’ve decided that PI insurance is better placed under FAP entities. NZI has taken the commercial decision that their risk appetite is to insure FAPs with three or more advisers,” says Stanger, whose firm helps the adviser community with professional advice and insurance recommendations.
He says NZI has had the lion’s share of the market since it acquired Lumly Insurance following Commerce Commission approval in 2014 to become the dominant provider of PI insurance to financial advisers in New Zealand.
Clinton Stanger says advisers should not self-insure.
According to the FMA around 1,000 FAP licences have been issued and Stanger estimates around 450 of them are to sole trader financial advisers.
He says the decision by NZI, owned by Insurance Australia Group, leaves a gap in the market and should be “concerning for single adviser FAP entities”.
“My recommendation to any professional is to hold PI insurance,” says Stanger. “I would not be recommending advisers self-insure.”
A recommendation Steven Burgess, Director of Compliance Refinery agrees with.
“Being without PI insurance is not something I’d recommend,” says Burgess. “While advisers can be diligent and careful, that doesn’t stop the energetic litigious client trying their luck, and defending those types of claims can quickly run into six figures.”
I would not be recommending advisers self-insure…
Industry body Financial Advice NZ (FANZ) relies on NZI for its members’ PI insurance scheme and has until December 2021 to settle on an alternative provider. It lobbied the FMA to remove PI as a condition of obtaining a licence under the incoming regulatory regime.
“NZI is probably the biggest provider of PI in the financial advice space,” says Katrina Shanks, CEO of FANZ. “And its move to not be part of the entire market – which it is indicating at this stage – is reducing the suitability of its products for some advisers.
“NZI is obviously making a commercial decision, it is disappointing as we are with NZI, so we are discussing options at the moment and have confidence we will have a comprehensive package for our members when our arrangement with NZI ends in December 2021.”
While advisers can be diligent and careful, that doesn’t stop the energetic litigious client trying their luck…
According to letters sent by NZI to advisers and seen by Stanger, those with PI insurance from the firm will be covered until policy anniversary. He is confident other providers will surface offering alternative cover.
“In a free market other insurers may see this as an opportunity,” he says. “There is a need for the product but there has to be the question – that’s on everyone’s mind – about pricing.
“My recommendation to advisers is to talk to their broker, and the sooner the better.”
An FMA spokesperson said: “We recognise the professional indemnity market is evolving with insurers reassessing their positions in light of wider global trends, including Covid-19.
“We are unable to comment on what are commercial decisions for individual insurers about what cover they offer and on what terms. We are, however, continuing to discuss the availability of PI cover directly with brokers, insurers and various adviser professional bodies.”
NZI says its underwriting position is constantly under review, “…balancing our partner and customer needs in line with current and future regulatory requirements”.
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