What will happen to insurance premiums under the new regime?
Improved industry standards could stabilise insurance premiums under the new financial advisers regulatory regime, according to one industry expert.
Friday, February 21st 2020, 8:48AM 
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Andrew Ford
Andrew Ford, head of financial and professional risks at insurance broker Crombie Lockwood, says rising standards under the FSLAA regime could reduce the risks for insurers and help keep a lid on rising premiums.
Premiums on professional indemnity insurance have risen in recent years amid increasing claims here and in Australia. Yet Ford does not believe the new licensing regime will further add to the problem for advisers.
“From an insurance premium point of view, the ones that have gone through licensing will be at a higher bar than it has been," Ford added. "Under the new regime, a lot of advisory firms will have had to pull their socks up. In my view, the new licensing regime isn’t going to cause insurance premiums to rise for advisers. If you’ve jumped through the hoops to be deemed fit and proper, then you’re actually less of a risk going forward. It’s a positive thing for insurers and should be better for the risk base of their clients.”
Ford played down fears that the new regime would lead to major increases in premium rates.
“Potentially it could have the impact of stabilising [rising] premiums, because advisers will have a more robust risk management programme in place," he added. "Under the licensing requirements, businesses will have compliance and risk officers to demonstrate their adherence to the new standards which require them to be focused on customer outcomes above all else."
"With the new regime in place, insurers will take a wait and see approach. But it should lift advisers to a higher standard," Ford added.
However, the insurance market could change if the FMA takes a more aggressive enforcement approach under the new regime.
Ford warns "under the new regime there will be more FMA oversight, and if they take a heavy handed approach we will see insurance premiums start to move again”.
Ford also sounded a warning on directors and officers' insurance (D&O), with claims increasing in recent years.
“Directors and officers liability premiums are also increasing as there has been increased claims activity in this area both in NZ and in Australia resulting from the Royal Commission. We are also seeing the arrival of litigation funders on our shores," he added.
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The real issue will be the pressure on directors and officers' insurance (D&O) when you consider FAPs taking on the liability for a large number of Advisers. More Advisers = more potential claims = exponentially increased premiums.
The reality is the cost will fall back on the individual Adviser, not the business.