PROFESSIONAL indemnity insurance has become one of the most expensive forms of cover in the past two years and a major overhead for business.
During this time real estate agents have seen their premiums skyrocket and many have struggled under the new cost regime.
Unable to carry the premium increases, a small number of agents in the Perth market are choosing to operate without PI insurance.
One industry source said he had chosen not to take out PI insurance after the recent rises, particularly because he had never made a claim. Another said the break-up of the Real Estate Institute of Australia (WA) group policy, which ended after the HIH collapse, had removed an important cost buffer for the industry.
One real estate agent said that, prior to the crisis in the insurance industry, his policy, obtained through the REIWA group policy, cost around $8,000 a year. Today his PI insurance premium is $30,000.
Professionals chief executive Steve Wright said all Professionals agents are required to have PI insurance, however he was aware that there were other real estate agents operating without the cover.
Mr Wright said insurance providers often sent out renewal notices only a couple weeks, or in some cases one week, before it was due to be paid, making it difficult for agents to raise the funds to pay it.
He said attempts to establish an in-house group policy for Professional agents had been fruitless. Even with the premium clout of 40 Professional real estate offices the premiums could not be reduced.
Centuryside Corporate business development manager Jasmina Catrick said that, despite the financial burden, she would not consider operating without PI insurance.
“It is such a risk not to have it,” she said.
Ms Catrick said property management was an area that had been hit hard by the insurance firms with excess on PI claims dealing with property management jumping from $5,000 to $15,000 in the past two years.
“I tried to shop around but I was told that they were all the same.”
She said the cost increase was a burden on the agency, with payments on PI insurance now made in monthly instalments rather than in one lump sum.
According to Ms Catrick agents were caught in a double bind because REIWA required all members to be covered by PI insurance. However, the main reason the majority of agents became REIWA members was to access all the legal property transaction forms REIWA provided.
“The best way would be to have a REIWA blanket insurance policy,” she said.
REIWA president Jim Henneberry said that, in the interests of consumer benefit, all REIWA members had to have PI insurance.
He said the institute was now conducting annual checks to ensure that all members could provide evidence they had PI insurance.
In addition, the institute is working in conjunction with other State and Territory real estate institutes to develop a mutual discretionary fund.
Mr Henneberry said an industry-based captive scheme was under consideration, which would involve industry putting in premiums, insuring up to a fixed amount after which all claims above that were processed by an outside insurance firm.
He said the New South Wales institute had already established a similar fund and that REIWA was monitoring it to see if it was suitable for the WA real estate industry.
Since the collapse of the HIH and the REIWA group policy, insurance claims had dropped significantly, particularly the numbers of spurious claims, he said.
Mr Henneberry said this was due in part to the increased excess on a claim, with agents more likely to sort out problems themselves or implement processes to eliminate the problems altogether.
“It is such a risk not to have it [PI insurance]. I tried to shop around but I was told that they were all the same.”
- Jasmina Catrick
