The Finance Brokers Association of Australia has urged brokers to ensure they hold “adequate” professional indemnity cover as “risks to brokers have risen in the current environment”.
Executive director of FBAA Peter White has called for brokers to review their professional indemnity (PI) insurance arrangements, citing concerns that the current scrutiny of the sector is increasing the risks of claims being brought forward by lawyers, despite there being no “legitimate reason” for claims to increase.
Mr White added that brokers should be aware that the maximum claim from an approved External Dispute Resolution Facility (EDR) has risen this year, and therefore need to ensure that they have adequate coverage.
In January, the maximum monetary limit on awards (or “compensation cap”) rose from $309,000 to $325,000.
Mr White claimed that brokers may therefore need to ensure that their PI cover is high enough and covers loss brought about by an “error, omission or negligent act in the performance of the professional services covered by the policy”.
“[We] are concerned that risks to brokers have risen in the current environment, notwithstanding that there are no legitimate reasons for claims to increase,” Mr White said.
According to Darren Loades, spokesperson for Insurance Advisernet, approximately 90 per cent of PI claims are lodged via an EDR Facility and “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 that 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.
All brokers must be a member of an EDR.
[Related: Broker sued by aggregator in loan fraud case]