Can Bulk Purchase Of PI Insurance Reduce Premiums?

If you have collaborated with others in Financial Services to obtain bulk purchase rates for Professional Indemnity (PI) Insurance Premiums, you need to rethink your approach. Scalability alone won’t lead to PI premium relief. This is mainly because premium relief can only happen when risks are reduced. The Insurer’s risk exposure varies so greatly between Australian Financial Services License holders (AFSLs) and the operations of their aligned Authorised Representatives (ARs). Premium rates are dependent on multiple factors including type of advice given; products used; process and documentation methods; systems of evidence utilized; and the types of clients advised. Past operational behaviours and claims history are also factors. There are many permutations and combinations to determine risk premiums. When risk factors are not identical between cohorts, it becomes very difficult to apply a bulk purchase rate to insurance. Each case must be assessed separately to determine claim probability. Hence bulk purchase is not the solution to resolve escalating PI Insurance premiums.

Why PI Premiums Are Rising?

PI Insurance Premiums for AFSLs and their ARs have escalated enormously in recent years. This is largely due to the rising level of claims paid out on complaints and unmitigated risks that remain. This has adversely impacted PI insurers commercial viability. In short, PI Insurers believe the market-place is ‘too risky’ to continue offering PI cover, with most now declining to offer cover altogether. That means any PI insurers remaining can set their pricing without competition.

How Can You Reduce Your PI Insurance Premiums?

As with most insurance, premiums can be reduced when the risk faced by insurers is demonstrably reduced. How do you reduce the risk of providing financial advice? Here are eight ways:

1. Identify the main risks resulting in your group’s complaints and PI claims. If you have no complaints or claims history, examine common claims impacting the whole industry, because these also impact your premiums. This is your greatest opportunity to identify where things are going wrong resulting in higher PI premiums. Itemise these into internal and external categories, that are controllable and uncontrollable, to refer to as you formulate your way forward.
2. Determine the causes honestly. After acknowledging the breakdown factors, soul searching is needed. Delve deep to determine the causes. Are the causes related to operational dysfunction? Or educational deficit? Are the issues due to poor, inconsistent processes – leading to errors of judgement or out of date techniques? Is there sufficient resourcing to support your AR’s? Are procedures efficient (inefficiency can lead to fatigue or complacency and mistakes)? What other factors are impacting? Consider impacts, such as dealing in high risk strategies with too many uncontrollable elements, such as economic or legislative? Are your people regularly left to their own unguided or unsupervised devices? Are you actively assuming (because of qualifications held, or the time a person has served performing their role) that your people are capable and competent, hence apply less stringent checks upon them? Are you relying too much on their untested competency, integrity or honesty? Do you have sufficient demonstrable oversight, in a way that can detect and pinpoint, the common breakdowns as they occur? Now action these.
3. Select systems that deliver outcomes you need. Determining root causes equips you with your list of operational requirements for the systems you must implement to mitigate the problems identified. New technology can be fun, but don’t waste time on a tech stack that is not effective in delivering your greater purpose. Too many systems can lead to time waste with you having to bridge the gaps between functionality. Select systems that solve your problems while saving your time, money and importantly, reduces your risks.
4. Be proactive. Use your list of risks and causes to portray what, why and how you’ve implemented your quality control capacity. Show your PI insurer how deeply you’ve examined the causes and proactively set mitigation processes in place. This is the way to be viewed favourably by PI insurers, who may potentially reduce your PI premiums because of your proactive approach.
5. Acknowledge your group’s risk mitigation cannot be achieved by loading up more compliance documentation and questionnaires. This has been proven to be counter-productive and not an effective way to indicate good risk management.
6. Reflect on all the advice complaints that ended up leading to complaints with successful PI claims. Presumably these were all audited at some stage, yet not one of the breakdowns were detected early enough to prevent a claim. Early detection is the key. Demonstrate you can spot an issue before it blows up.
7. Don’t be the AFSL that relies on testimonial responses alone to assess compliance, or uses XL spreadsheets as your records of this. This practice indicates to PI Insurers that you aren’t operating optimal risk mitigation procedures, and is a likely cause of your escalating PI premiums. Ask yourself, how many offenders actually admit to committing a breach when asked? Testimonials are an ineffective risk management strategy.
8. Build your oversight capacity to know the operational answers, without having to ask. This is your powerful risk mitigation strategy that can lead to PI insurance reductions.

The Past

If you’re living in hope that it won’t happen to you, or basing your future on your past performance, this won’t be reliable enough to indicate the probability of your future risks. You must take control of your group’s operational oversight procedures to credibly deliver your best chance of reducing your PI insurance premiums.

Your Future

Implement best practice to mitigate your risk of potential setbacks. Reduce PI premiums by reducing your group operational risk. Take charge of your group’s bottom line profitability with detection enhancements and organisational efficiencies. Restore the joy of operating your business again.

We want to hear from AFSL groups and ARs willing to participate in a trial that will be observed by Lloyd’s of London for the purpose of potentially reducing their PI premiums. To participate: Contact Us

Leigh Anoos is the Managing Director of Easy Monitor Https://easymonitor.com.au

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