Australian financial advisers need more PI insurance

One Australian law firm is currently pushing proposals to the country’s government in order to provide guarantees against the professional indemnity insurance shortfalls of financial advisers, according to business liability insurance experts.

In its recent submission to the Australian Treasury, the legal services provider remarked that regulations, as they exist in their current form, can oftentimes prove to be grossly inadequate due to regulatory language making ‘adequate’ professional liability insurance cover compulsory.

The plaintiff firm instead suggested advisers hold enough professional indemnity insurance in the event of a claim of AUS $5 million or greater.  It stated that the Australian government should guarantee any claim amounts which exceed this $5 million limit.

After the collapse of both Opes Prime and Storm Financial, corporate governance and financial services expert, Richard St John, has been conducting debates on the potential for instituting a compensation scheme.  Mr St John’s final report, which was prompted by the findings of a parliamentary joint committee,  will be submitted in August to Treasury

MP Bernie Ripoll led the committee, which concluded that there was quite often not enough professional indemnity insurance in place to cover the failure of a financial services firm.  However, financial planners argued against the regulatory crackdown, stating that they would be unduly punished whilst others would escape the new rules completely.

The legal services provider has told Treasury that The Australian Securities & Investments Commission could not rely upon financial advisory firms to tell them if they had inadequate insurance cover.  The plaintiff firm argued that hospitals quite often have AUS $20 million in cover in order to handle any one individual claim, while the government pays any amount that go over this limit.

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