Professional indemnity update

Curated risk has a great update on the professional indemnity market and a good contact form so that you can get an assessment and quote if you are in the market for professional indemnity cover options. Please check it out at:

https://www.curatedrisk.nz/financial-advisers

Also at the bottom of the page links to a Risk Evaluation which is a fact find document and allows Curated Risk to give advisers options for their professional indemnity and liability programme.

https://curatedrisk.formsbyair.com/forms/general-pi


Financial Advice NZ launch liability programme

Financial Advice NZ has announced that a liability programme for members has been launched. The insurance plan will be available to all advisers from 1 July 2021. Financial Advice NZ CEO Katrina Shanks has said that the programme is designed to offer an affordable alternative to Professional indemnity insurance. Sole advisers with their own license, classified as Class 1 FAPs, will be offered premiums ranging from $1,700 to $3,600. While licensed FAPs with 2-12 advisers, classified as Class 2 FAPs, will be offered premiums of between $2,250 to $4,300. Premiums will vary depending on advice streams. The liability programme will be underwritten by NZI and QBE.

“Financial Advice New Zealand chief executive Katrina Shanks says the new liability programme is for its members only and took seven months to put together with its broker Marsh New Zealand.

Shanks says the new insurance scheme is available to all advisers, including financial planners, and will start on July 1.

With PI insurance costs escalating, Shanks says the new liability programme offers great value for money and further incentives for members who qualify for "trusted adviser" status, plus runoff cover for FAPs and individual advisers.

"Professional indemnity insurance is a hardening market in these uncertain times due to the changing regulatory environment and the risk appetite of insurers, and the process to finalise this programme has been robust," she says.

"We have worked very hard on your behalf in a very difficult market.

Class 1 FAPs (sole advisers with their own license), will face premiums ranging from $1,700 to $3,600, depending on the advice stream.

The liability programme will cover all advice provided by the FAP.

Meanwhile, costs for Class 2 FAPs (licensed FAPs with between 2-12 advisers) will need to pay premiums of between $2,250 to $4,300, depending on the advice stream.

Marsh New Zealand central region manager Marijke von Molendorff says the policies are being underwritten by NZI and QBE who have spread the risk 60% - 40% respectively. 

She says the features of the programme are different depending on the size and licence class of each FAP and premiums are calculated based on income (see tables below) and people can pick and choose indemnity cover levels.” Click here to read more


FMA provides glimpse into full licence, and more daily news

The FMA has provided some insight into the requirements of the full license. It has been revealed that advisers can begin the application process from 15 March 2021. Although the process will be similar to the transitional license, the questions advisers will be required to answer have been described as being more rigorous. Unlike transitional licenses, full licenses will not have expiration dates. John Botica, director of market engagement, has noted that classes and conditions are another difference between the two license types.

“Advisers will be able to start applying for a full license on March 15, 2021, and the FMA says the process will be similar to what advisers have done for their transitional license – however, it says its questioning will also be a lot more rigorous.

According to FMA director of market engagement John Botica, the key differences between transitional and full licensing will be the time period they cover, and the different classes and conditions attached to a full license. He says the FMA will also go into more depth around an adviser’s practices and procedures.

“Transitional licenses last for up to two years, from March 15, 2021, to March 15, 2023, whereas a full license has no fixed term,” Botica explained.”

An important aspect of the full license is that it will include three different license classes. It will be important that advisers choose the right class as they will need to go through the full license application process again if they need to amend their class selection. Botica noted that advisers with transitional licenses will have two years to apply for their full license while new advisers must apply for full licenses. It has also been revealed that questions around competency, to conduct, to conflicts of interest will be examined during the application process.

““You have that license for as long as you continue to run your business. The full process also includes three different license classes, and it’s important to choose the right class – if you need to change it, you’ll need to go through the application process again.”

“There were two standard conditions for transitional licensing, and for the full license, we add another five,” he continued.

“That was subject to consultation, and we had an overwhelmingly positive response from everyone around standard conditions.”

Botica confirmed that there will be a two year period in which advisers can apply for a full license, and the competency safe harbour will last for those two years. However, new advisers will need to go straight to a full license – they won’t be able to obtain a transitional.

Botica says the questions asked by the FMA will also be much deeper, and will touch on everything from competency, to conduct, to conflicts of interest.” Click here to read more

In other news

FMA: FMA notes rise in business impersonation scams during COVID-19

From Goodreturns: Professional indemnity insurance: What advisers need to know

Lifetime: New director appointed to Lifetime board


Checklist: what you should consider when buying professional indemnity insurance:

The following points highlight some key aspects an adviser should consider when looking at purchasing professional indemnity insurance.

The Insured

  • Who are the parties named as covered by the policy?
  • Does this include all advisers and entities under which they operate?
  • Does this include cover for administration staff?
  • What happens if I bring someone into the business? When do they need their own cover?

Operative or Insuring Clause

  • Does the insuring clause clearly describe what is insured?
  • Does the cover you understand you have bought meet the cover you need?
  • Are there any activities which you undertake that would not be seen to be included by the business description?

Territory and Jurisdiction

  • Do you offer advice to clients outside of NZ? Does the policy include cover for this advice?

Limit of Indemnity

  • What level of cover are you required to carry under your agency agreements?
  • Does the limit of indemnity you hold reflect the mix of product advice you give now?

Definitions

  • Do any of the definitions change the meanings of the words or expressions in the insuring clauses or exclusions?

Exclusions

  • Do any of the exclusions remove cover for any activities necessary to conduct your core business?
  • Do any of the exclusions remove cover for any activities necessary to conduct your non-core business?

Excess and related clauses

  • Do you understand how the excess operates in practice?
  • Does the insurer pay the costs and expenses incurred in defence of a claim (or does this fall within the excess)?
  • Is there are a higher excess or deductible for some activities? E.g. Fire & General advice

Other insurances

  • Does your cover extend to other types of insurance, E.g. Public Liability, Statutory Liability?
  • Is Internet Liability the same as Cyber Liability Insurance?

We would like thank Clinton Stanger of Curated Risk Limited for supplying us with the content.