Advisers told to take more care with PI cover

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Advisers need to take care to insure their professional indemnity cover offers them protection for all their business risks in the new legislative environment, one advice firm director says.

Friday, June 9th 2017, 6:00AM 1 Comment

by Susan Edmunds

Andrew Verrall, director of Accordia, said some advisers would need to review their cover in light of the law changes ahead.

Many might find they needed directors and officers liability if they were operating as a corporate, he said.

“If they haven’t got that they may not have the ability to cover their losses or any defence costs. It can be quite problematic. Look closely at your business structure and understand where the exposure might reside.”

They should also think about how their business worked with related parties and disclose all relevant relationships to their PI insurer, he said.

If they acted as a trustee for clients, that would need to be disclosed, too.

“These things are not necessarily covered in PI cover proposals but they could have a significant effect in the event of a claim.”

Verrall said the vast majority of advisers had no experience of PI claims but there had been a number in the industry who had been “left in the cold” by an insurer who avoided a claim.

“Good record-keeping is absolutely vital going forward,” he said. “If you haven’t got that message now, you never will.”

Solid record-keeping was the first line of defence for advisers, he said.

Advisers should expect to deal with a lot more due diligence from PI underwriters, he said, who had dealt with a significant number of claims in Australia over recent times.

“Advisers should look for greater levels of cover,” he said. “Look at the kind of exposure they have in therms of their biggest clients, and the potential for losses.”

Advice businesses should have a matrix in place of risks they were exposed to so they could determine which they were prepared to mitigate through processes and procedures and which they wanted to insure.

“Rather than saying ‘here’s the PI prop again’ and dashing it off, take the opportunity to give yourself a good understanding of the level of cover you have in place to cover the risk of being in business as an adviser. With PI, if you don’t do this job very carefully you’re creating a space for insurers to avoid meeting a claim obligation.

“We are living in an increasingly litigious environment. Advisers need to be clear what areas of business risk they are prepared to take on and what they are not. Are you taking on more risk than you want to?”

Tags: professional indemnity

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