The Financial Planning Association of Australia (FPA) is cautiously reviewing moves by the Federal Government to make professional indemnity (PI) insurance compulsory for financial planners so they can compensate badly treated consumers.

CEO Jo-Anne Bloch says FPA principal members, who also hold Australian financial services licences, are already required to have a minimum level of indemnity of $1 million per individual claim and $2 million in aggregate.

Ms Bloch says members can, and often do, increase this level based on their particular business situation.

“We support the need to ensure that all financial planners have a minimum level of cover, but we do not support any moves that will dictate terms and conditions.”

She says at this early stage the FPA thinks the Government’s preferred option, which is to make professional indemnity insurance part of the conditions of their licence, is the most appropriate course of action. However, it would also like to see the inclusion of self-insurance, for example.

“We need to avoid measures that will increase premiums, cost of implementation, and compliance.”

Ms Bloch says there are also concerns about the effect on small licensees, the definition of “adequate cover”, the relationship with maximum compensation payable under the Financial Industry Complaints Service, the time required for licensees to review their current arrangements, and licensees losing their licence where PI insurance is found to be inadequate.

“Professional indemnity cover is an important and complex issue. Let’s be very clear, however, that having appropriate levels of PI cover will not on its own avoid a Westpoint from occurring again – nor will it guarantee consumer protection.”

The FPA has begun the consultation process with members to allow its submission to be finalised by the November 30 deadline.

Insurance brokers are obliged to maintain professional indemnity insurance. This arrangement is in place until December 31 this year as brokers remain subject to the PI insurance requirements that applied under the superseded Insurance (Agents & Brokers) Act 1984.

Treasury has released draft regulations stating that compulsory PI will be required for insurance brokers after January 1, and is now awaiting industry feedback.