FPA: improve professional indemnity risk modelling

According to Deen Sanders, chief professional officer of Australia’s Financial Planning Association, the FPA would like to see an improved model implemented for pricing individual risk that could have the potential result of reducing the costs of professional indemnity insurance premiums.

Mr Sanders stated that even though the Australian Securities and Investments Commission has eased certain business liability insurance requirements, this has done nothing to reduce the cost of cover.  Meanwhile the professional liability  insurance market has continued to harden over the past few years, the Australian CPO added.

Mr Sanders additionally stated that professional indemnity premiums in the last 12 months alone have increased anywhere between 10 per cent and 20 per cent despite claims activity not increasing by the same amount.  He was also quick to mention that there had been no claims made by FPA members since the inception of the organisation’s PRO Professional Indemnity service.

The FPA has become disappointed with the market for professional indemnity insurance underwriting, said the chief professional officer.  Mr Sanders also said that the organisation would prefer to see more pricing for individual business risk as an alternative. There’s no need to take such a blanket pooling approach to underwriting, said Mr Sanders, as doing so results in everyone being ‘tarred with the same brush.’

However Michael Gottlieb, managing director for Mega Capital, stated that insurance pricing goes through cycles.  Mr Gottlieb added that the market hardening over the past few years had been a result of both high frequency and severity of claims.

The cycle has begun to ease, said Mr Gottlieb.  He also stated that the market is most certainly not experiencing the same levels of increased rates that have been the norm for the past two years.

Adding that all forms of insurance were generally based on a methodology of pooling, the managing director stated that risks were assessed individually within certain parameters.

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