PI cover going to cost more

Financial Planners and Insurance Association (FPIA) chief executive Phillip Matthews is warning his members they will face much high premiums for their professional indemnity insurance cover.

PI cover, as it is called, is required to be held by all FPIA members, and it insures them in case they are sued for defamation, malpractice or giving bad advice.

"PI cover has been underpriced for a long time," Matthews has been telling members at a series of road shows being held throughout the country at present. New Zealand advisers have had "a very good run for a long time."

He says the premium rises have nothing to do with the level of claims in New Zealand, rather it's related to the globalisation of the insurance industry.

In the past PI rates have been far too low in New Zealand, compared to other countries.

Matthews says because insurance companies are looking at their products on a global basis they want to make sure they are collecting comparable amounts of premium for cover written in each country.

Another factor which is helping push rates up is cases where investments haven't worked. Matthews includes in this list Metropolis, Gideon and Canterbury Asset Management.

The prospect that New Zealand's financial planning profession may face tougher legislation, like Australia, is also a factor pushing rates higher. If tougher regulation happens the number of claims is likely to increase, thus requiring higher premiums.

The other issue financial planners need to be aware of is that companies are now writing specific exclusions into their cover.

Currently the only two companies which provide cover in New Zealand are Lumley and QBE.