The CEO of the AIOFP, Peter Johnston, reports on the issue of AFSL’s holding out on advisors moving with respect to PI insurance.
If you are wondering what the latest trend/strategy with PI run off cover is when an AR moves from one AFSL to another, below is an exchange with our PI Expert Ryan Neary from GSA/Steadfast with commonly asked questions from members. Ryan, putting aside the latest issue can you please give a response to the following questions
What is the current market expectation with run off cover when an Adviser changes their Principal AFSL holder? If the AFSL holder has agreed to indemnify the Adviser whilst acting under their AFSL then any liability arising from the advice/services that were provided under that AFSL will sit with the AFSL holder. Therefore the PI Insurance policy that the AFSL holder is holding at the time the claim against the Adviser is first notified is the policy that should respond.
Can the situation be mitigated by the Advisers agreeing to be legally liable for any future client problem? This would need to be something that was agreed between the Adviser and the AFSL holder they were leaving. We would recommend that a formal Legal Contract is considered for this. It therefore would no longer be an insurance obligation but would then become contractual / Legal.
Can the new insurer the Adviser is going to take on the liability of his/her client base for any past claims? It is very rare for Insurers to take on the past liability of incoming Advisers to an AFSL Holder. The Insurer is providing Insurance to the AFSL holder and is doing so based on the information and representations that have been made by the AFSL Holder they are Insuring. If the Insurer was to extend coverage to the past services and advice that had been provided under another AFSL holder they would be taking on exposures that they have not underwritten and also that the AFSL holder they have agreed to Insure has no control over. If an Insurer did agree to this coverage it would be potentially not be feasible due to the additional cost.
Regards.
Peter Johnston | Executive Director
Association of Independently Owned Financial Professionals
Suite 1211, 1 Queens Road, Melbourne VIC 3004
P 1800 111 203, d 03 9863 7574, m 0418 857 621
www.aiofp.net.au | Download my business card
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