Financial planners - what is your real PI insurance excess?

In recent months, I have come across several cases where advisers have indicated that they have had to deal with a PI claim. However, when it came time to pay the excess, they were surprised to find out that it was much higher than they thought.

On further investigation and upon obtaining the Certificate of Currency from their AFSL they found that the gap between the claim amount and the excess (also called the retention amount) required to be paid was dramatically different to what was understood by the adviser.

For most advisers, this is not going to be an issue because they have never had a complaint and do not expect to get one either – which is wonderful. BUT this is not the point.

Your AFSL whom licenses you is effectively your business partner and so should you not expect to be provided with accurate information regarding this critical issue?

Should you not also be entitled to know what costs you might incur in the event of a claim?

Unfortunately, this is an example of where due diligence should be regularly applied, in order to protect yourself from an unpleasant surprise.

To assist you, I have provided some guidelines or some standard questions you could ask when evaluating your current or prospective licensees PI arrangements or items to see in this review process:

·      Ask for a copy of the Certificate of Currency and or the PI Policy wording.

·      What is the excess (or retention) amount and is it acceptable for you?

·      Ask about the claim’s history over the last 5 years.

·      Ask if there have been any changes to the cover terms over the last 5 years and why.

·      Ask how long they have been with the same insurer (as there may be good reasons to change) however, there are also significant benefits to staying with one insurer so if there have been several changes it would be a good idea to understand why.

·      Take note of who the insurers are that are underwriting the policy.

·      Check when the cover ends.

·      Is there any specified “run off” cover and the costs attached to it?

It might just be a worst-case scenario that you could avoid in the future. Wishing you all a successful and prosperous 2021.

Kind Regards,

Michael Gershkov - 0438 776 666