Brokers with financial adviser clients must show professional indemnity (PI) insurers which areas their clients work in to obtain better rates, according to Assetinsure.

In particular, the low risks involved in selling life insurance should be identified, National Manager Professional Risks Ewen McKay says.

He says most PI insurers now avoid financial advisers because of past problems with failed investment companies.

“If the practice is pure life insurance, these have not caused grief to PI insurers,” he told Life+Health insuranceNEWS.com.au.

“But the practice must detail if there is any investment advice given, so the insurer can understand the risks.”

Mr McKay says only a few advisers, tied to businesses such as Westpoint and Storm, were to blame for driving away PI insurers.

“Most [PI] insurers will not insure financial planners and those that do have never made a profit from them.

“But if the advisers can prove a low claims history and make the insurer aware of the low risk involved in selling life insurance, this will be recognised in premiums and excesses.”

Excess is also determined by business size, Mr McKay says. If the figure grows too large insurers will decline cover because they fear the practice being unable to pay.

“We intentionally only offer an excess of 4% of the turnover, because we believe that is sustainable,” he said. “So if a practice is facing three or four claims a year, there may be an impairment in the ability to trade and that would breach [regulatory guide 126], which requires an excess to be affordable.”

Mr McKay says the more effort a life practice puts into providing underwriting information, the better the outcome with the PI insurer.

“Sitting with your broker and working to deliver what the insurer wants to see will bring benefits. More detailed information makes it better for the insurer to price.”

While big players can afford systems to monitor business at the level of detail insurers require, it is harder for smaller dealer groups, he says.

“The smaller groups will have to look at spending the money to bring their systems up to scratch, to meet the requirement from insurers.”