Paradigm Group managing director Patrick Nalty said given the fact that the licensing regime is still relatively new and the insurers are yet to have any claims experience with licensed advisers, they don’t have a good idea of what’s happening in the space.
“What the PI insurers are really worried about, and they have spoken to ASIC about this, is that most people, particularly as this is a new regime, do not understand their PI policies,” said Mr Nalty.
Mr Nalty said the PI insurers are concerned that there is a complete lack of understanding in the accounting profession of what they’re insured for and what they’re not.
“They don't understand fundamentally what they're covered for and what they're not covered for. They don't understand the PI policies and on what basis it operates and that's a concern that the insurers have been taking up with ASIC,” he said.
Insurers believe licensed accountants don’t have a good understanding of clauses relating to fraud and dishonesty cover, for example, said Mr Nalty.
This was also flagged as a risk area in a recent review into professional indemnity insurance by ASIC across small AFS licensees more generally.
In the review, ASIC said the exclusions in the standard terms of PI insurance policies issued by the two insurance companies could “create uncertainty regarding the adequacy of cover for fraud and dishonesty in some circumstances”.
“You have to have certain minimum guidelines inside your PI insurance to be a licensed AFSL holder,” said Mr Nalty.