Professionals look for cover

THE careers of many accountants, architects, engineers, financial planners and similar professionals are in jeopardy due to a lack of professional indemnity insurance cover.

The scale of the problem is only starting to come to light as businesses try to renew their professional indemnity insurance cover.

Insurance brokers Western United Financial Services director Brett Waterman said any professional offering advice would find it hard to get PI cover.

“Auditors are finding it very hard. So are valuers, insurance brokers and engineers. Basically, anywhere people can sue you for your professional advice,” he said.

“We hold a $20 million PI cover and our premium is going up by 130 per cent.”

The number of reinsurers offering cover in this market has fallen from 16 to three in the past year.

Reports abound of professionals struggling to find PI cover and, when they do, facing premium increases of up to 1,000 per cent. Added to the higher premiums is an increase of up to 100 per cent in excess requirements and a reduction in cover.

Financial planners are being hit even harder than other professions because the Federal Government’s new Financial Services Reform laws requires them to increase their professional cover.

Financial Planners Association head of professional standards June Smith said there had been a number of new exclusions included in PI policies for financial planners, such as for advice on direct shares, tax effective investments and superannuation.

“You need to have PI to be a member of the FPA. However, before FSR came in the only area of our business that had a statutory requirement for PI was life insurance,” she said.

“Now most financial planners have to have some sort of cover.

“In the past the Australian Securities and Investments Com-mission said licence holders had to lodge a bond of $20,000.

“The question that needs to be answered is whether the ASIC will allow that to continue, or [whether it will] make PI mandatory.”

Mr Waterman said the FSR was going to be a “somewhat challenging” piece of legislation for insurers.

“A lot of people will need to get re-accredited,” he said.

RSM Bird Cameron managing partner Kim Hutchinson said his firm had just renewed its PI cover.

“We faced a 250 per cent premium increase,” he said.

“I think we got off lightly. I’m hearing of premium increases of up to 500 per cent.”

Both peak accounting bodies, CPA Australia and the Institute of Chartered Accountants in Australia, require their members to adhere to a minimum standard of PI cover. For both organisations that is $250,000 per partner.

CPA Australia ethics and public practise coordinator Donna Ashton said that requirement was a minimum standard and one that needed to be considered alongside the type of work the partners were undertaking.

“Audit is one of the areas that it is extremely difficult to get cover in. I hear insolvency is another one,” Ms Ashton said.

It is understood auditors will find it even harder to gain cover as the fallout from recent corporate collapses, such as Enron, Tyco and, most recently, Worldcom are factored in to insurance company premium calculations

ICAA professional standards consultant Lesley Simmons said the institute’s minimum standard had required members to gain cover for a number of criteria.

“However, our members are finding it difficult to find insurance that will cover all of the required criteria,” she said.

Lawyers have managed to dodge most of the insurance problems facing other professions because of the way their PI scheme is structured.

The Law Society of WA organises $1.5 million in PI cover for each of its members. However, the members are required to arrange any additional cover above that.

Law Society of WA president Clare Thompson said the society had reinsured for the forthcoming year but its members still faced a 25 per cent premium increase.

“I understand the top-up insurance has been harder to get,” she said.

The Law Society had been in a three-year insurance deal with the US-based St Pauls insurance company.

It, like building industry insurer Dexta, is trying to leave the Australian market.

Ms Thompson said the Law Society agreed to let St Pauls out of the final year of its contract.

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