Insurers offering professional liability polices will be watching for any changes in consumer claims levels and dispute resolution awards over the next 12 months, writes Curated Risk‘s Clinton Stanger…


Changes to the dispute resolution scheme (DRS) environment come into effect on Thursday 18 July to align the differing jurisdictions that currently exist between competing schemes.

The MBIE impact study concluded in 2020, and throughout the study the perceived impact of these legislation changes on FAPs have been considered negligible.

These impending changes mean that the DRS will consider cases up to $500,000 in value and the maximum non-financial loss award, or ‘inconvenience’ award, moves from between $5,000 (the current limit for FSCL) and $9,000 to $10,000.

In any regulatory environment, where the severity of potential awards from dispute resolution services increases significantly there is, in my experience, a corresponding increase in risk.

Clinton Stanger of Curated Risk wearing a blue jacket
Clinton Stanger of Curated Risk.

Typically, managing this risk involves the transfer of such risk to a professional indemnity insurance policy.

The increase in the maximum penalty which DRSs can award inevitably factors into the perceived risk that insurers providing professional indemnity insurance to financial advisers continually evaluate.

In the realms of risk, severity is one factor, the other significant factor is frequency.

The change in legislation has been brought about to minimise the incidence of a complaint not being considered by a DRS because it falls outside of the current jurisdiction. Sure, there is avenue through the courts, but this is more complicated and costly, therefore allowing these cases to be considered by DRS surely will increase frequency.

This highlights a change in the regulatory environment which continues to evolve in the financial advice industry.

Over the past three to four years, the marketplace for professional indemnity for financial advisers and FAPs has become more competitive and significantly more sustainable.

While insurers have taken a pragmatic approach to these impending changes and pricing for professional indemnity has been stable, regulatory change and risk factors such as increased severity, and encouraged frequency of dispute resolution, are pricing factors that are far more likely to influence increases [in premiums] rather than decreases.

Given the renewal timing of most financial adviser professional liability programmes (June / July / August), then trends of disputes from this legislation change will be a factor in the 2025 renewal season.

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