When it comes to professional indemnity insurance, many financial advisers have a “relentless focus” on price, but advisers need to know exactly what to look for and understand what they are buying when they are sourcing these products, says adviser consultant, Tony Vidler.
Vidler is one of the shareholders of Quadrant PI, which was set up four years ago offering professional indemnity insurance for financial advisers.
He tells RiskinfoNZ the firm now has around 180 FAPs within its scheme which, he says, is a relatively small part of the total FAP market. Class 1 FAPs make up about a third of its members.
While not a regulatory requirement in New Zealand, PI insurance is mandated by agencies such as insurers, lenders and fund managers.
However, Vidler says advisers can find it difficult to compare prices and policy wordings and many are not always aware what they are buying.
Reiterating that the number one criteria for most advisers in PI is price, Vidler says some are not terribly good at understanding the price being given to them.
…It can be as simple as comparing products where one price is GST inclusive and the other is not…
“It can be as simple as comparing products where one price is GST inclusive and the other is not. Or advisers can pick their insurance on price but that product is only for 10 months, not the full year.”
Another area he points to is retroactive cover for every member.
Vidler says this type of PI covers everything an adviser has ever done. If you have been in the industry for 30 years and someone lodges a complaint about something you did 25 years ago, you won’t be covered without retroactive cover.
He sees this as significant for advisers and says more insurers are now offering it.
Another challenge in the PI market across New Zealand is that there is not much claims data available. But Vidler says from their own scheme they can see what premiums have been collected and how many claims have been lodged.
As a relatively new service offer, Quadrant PI has processed few claims to date.
Vidler notes the potential impact a successful claim may have on the adviser’s annual PI premium and that his firm works with members to help manage any prospective claims before they are made, in order to minimise claims numbers.
He says this approach has seen the Quadrant PI scheme priced accordingly, and has also led to recent premium reductions in some cases.
The key message from Vidler is that advisers need to appreciate exactly what you are buying, before you commit to a broker or a policy.