The Australian Securities and Investments Commission (ASIC) will permit excesses or deductibles on professional indemnity (PI) cover to exceed the level prescribed by the Insurance (Agents & Brokers) Act 1984 (IABA), in a bid to assist brokers obtain more affordable insurance.

Ian Johnston, ASIC’s Executive Director of Financial Services Regulation, says the regulator is aware that PI is currently difficult to place and acknowledges that the maximum permissible excess “has not been reviewed for some time”.

Under current compensation arrangements, an acceptable contract of PI insurance must be maintained by insurance brokers registered under IABA, as well as by Austrlian financial services licensees whose licence authorises them to carry on an activity to which the IABA PI insurance requirements previously applied.

These current arrangements will continue to apply until March 10 next year, when new arrangements are expected to come into effect.

Under IABA, an acceptable contract of PI insurance is prescribed as one where any excess or deductible on the PI insurance cover does not exceed $10,000 or 2.5 % of the insurance brokerage income for the previous financial year, whichever is greater. ASIC has the discretion to allow an excess or deductible to exceed this.

Mr Johnston says ASIC will permit an excess or deductible to exceed the IABA requirements, provided the excess or deductible does not exceed $18,750, or 20% of the surplus liquid funds (SLF) of the insurance broker or licensee, whichever is greater. The SLF is to be calculated in accordance with Policy Statement 166 Licensing: Financial Requirements.

A broker or licensee will need to apply to ASIC in writing to qualify.