FOFA predicted to push up premiums and prices: survey
September 9, 2013
SYDNEY, 9 September 2013 – The recently introduced Future of Financial Advice reforms are more likely to drive up the cost of financial advice and professional indemnity insurance than they are to weed out rogue traders, according to a survey by law firm Moray & Agnew.
The Moray & Agnew survey of professional indemnity insurers, brokers, advisors and service providers was conducted at the Australian Professional Indemnity Group (APIG) annual conference in Sydney last week, and simultaneously online of Moray & Agnew’s industry network.
156 senior professional indemnity and D&O industry participants took part in the poll.
While close to one-quarter (22.73%) of respondents believe FOFA will lead to better practices, resulting in fewer and less significant professional indemnity claims, the reforms are predicted to come at a cost. One in five respondents (18.94%) consider heightened compliance will push up the cost of financial advice and over one-third (37.88%) expect premiums to increase (22.73% by up to 10%; 15.15% by 11-20%).
12.88% of respondents believe the reforms will squeeze small and independent players out of the market and just 9.09% consider FOFA will help ASIC weed out rogue traders.
Moray & Agnew partner Geoff Connellan describes the findings as consistent with the industry’s expectations.
“The financial services industry formed the view early on that FOFA would push up the cost of financial advice so in that respect these results are not surprising. However, if the objective of the reforms was to provide further protection for consumers, the industry is dubious that outcome will be achieved.”
According to Connellan, Australia’s growing class action mentality, on top of the aftermath of the GFC, the still weak economy, and the emergence of litigation funders, has created fertile ground for claims against participants in the financial services sector.
Almost half (46.97%) the respondents expect companies and/or directors will seek greater protection to guard against class actions and many (20.45%) forecast greater restrictions will be imposed on terms.
“While litigation funders play an important role – particularly by assembling smaller claims which would not be economically viable to pursue individually – they are also prompting companies and directors alike to seek greater protection”, says Connellan. “Financial advisors and dealer groups are at risk, with 34.85% of our respondents predicting that profession will experience the highest level of claims activity in the next 24 months.”
Professions most at risk
|Directors and officers||
|Accountants and auditors||
|Building industry professionals||
|Real estate agents and valuers||
Respondents do not expect real estate agents and valuers to face as high a level of claims activity as other professions over the coming two years.
Geoff Connellan describes that result as unexpected.
“Valuers were fair game when the property market plummeted following the GFC. Now, years on, they’re still being charged among the highest premiums for professional indemnity cover. The insurance industry must perceive there to be significant risk in the valuation profession, yet respondents to this survey clearly think valuers are far less exposed than others.”
For further information, please contact Jacqueline Burns, National Marketing Manager, Moray & Agnew, firstname.lastname@example.org or +61 2 9234 4648.
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