Clarifies indemnity position
ASIC has recognised indemnity insurance difficulties for some professionals, spelling out circumstances in which it will permit excesses or deductibles on professional indemnity insurance cover to exceed the level prescribed by the Insurance (Agents & Brokers) Act 1984 (IABA).
Under current compensation arrangements, an acceptable contract of professional indemnity insurance must be maintained by insurance brokers registered under IABA, and Australian Financial Services Licence (AFSL) holders whose licence authorises them to carry on an activity to which the IABA professional indemnity insurance requirements previously applied.
These current compensation arrangements would continue to apply until March 10 2004, ASIC said.
After this, it is anticipated that new compensation arrangements, under s912B of the Corporations Act (the Act), will come into effect.
Under IABA, an acceptable contract of PI insurance is prescribed as one where any excess or deductible on the PI insurance cover does not exceed $10,000 or 2.5 per cent of the insurance brokerage income for the previous financial year, whichever is greater.
ASIC has the discretion to allow an excess or deductible to exceed this particular requirement, and has said it will permit an excess or deductible to exceed the IABA requirements.
This allowance will be available while the excess or deductible does not exceed $18,750, or 20 per cent of the surplus liquid funds of the insurance broker or AFSL holder, whichever is greater.
The surplus liquid funds will be calculated in accordance with Policy Statement 166 Licensing: Financial Requirements.
In order to qualify, an insurance broker or AFSL holder will need to apply to ASIC in writing.
Where the excess or deductible is greater than $18,750 but does not exceed 20 per cent of SLF, applicants must also provide a supporting letter from a registered company auditor confirming the current amount of surplus liquid funds.
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