The Finance Brokers Association of Australia (FBAA) has warned brokers to ensure they hold adequate professional indemnity (PI) cover, citing an increase by ASIC of the maximum claim that can be awarded by an approved External Dispute Resolution Facility (EDR) and the current publicity around the finance broking sector.
The claim amount was lifted from $309,000 to $323,500 at the beginning of this year and the FBAA says there has been little advertising around this, so many insurers likely would not have addressed the issue as yet.
FBAA executive director Peter White said members should check with their insurers and aggregators to ensure that they are adequately covered for the new increased limit.
“We also know what lawyers are like, and are concerned that risks to brokers have risen in the current environment, notwithstanding that there are no legitimate reasons for claims to increase.”
Insurance Advisernet (IA) is the preferred PI provider to FBAA members, and spokesperson Darren Loades said their ‘Finance Brokers PI Plus’ policy has already been amended to cater for this increase.
“If you’re unlucky enough to be involved in a PI claim these days, approximately 90 per cent will be lodged via an EDR Facility so brokers need to ensure that their policy meets the current requirements,” he explained.
He said while IA’s policy has a nil excess on EDR type claims, not all policies are the same.
“Brokers need to know what type of excess they will have to pay and if that’s affordable for them.
“If brokers are not aware of the risks and obligations on their PI policy, they could end up having to pay their own legal costs and subsequent EDR compensation awards as a result of any litigation.
He said the percentage of claims the company is seeing in this category is rising rapidly and believes this trend will continue as interest rates eventually increase.
FBAA members can access a Financial Ombudsman Service and every broker must be a member of an external dispute facility.