Changes to the way consumers are compensated could blow out professional indemnity insurance for planners, a financial services lawyer has warned.
The Financial Industry Complaints Service (FICS) will award consumers up to $100,000 in compensation for every claim against financial services providers for losses suffered from separate instances of advice or the handling of transactions.
Previously this monetary limit only applied to complaints as a whole, meaning that higher cash payouts are now likely.
The changes are unwelcome and have very serious implications for the PI insurance of FICS members, Perth lawyer Mark Halsey said.
Using the example given by FICS to describe the change, Halsey said a client who was given three statements of advice on three investments totalling $180,000 could give rise to a compensation claim of $300,000.
“If FICS treats the separate advice transactions as three separate claims, the FICS member may well be facing three separate excess payments under their professional indemnity insurance policies – assuming the insurers accept the risk,” he said.
But if insurers ignore FICS’ ‘new’ interpretation, and treats it as one event, a different problem may arise, Halsey said.
“Insurers may argue that their liability is restricted, because their FICS endorsements are limited to $100,000 under claims as defined under the policy, which may not necessarily be the same as claims as defined by FICS,” he said.
“It goes without saying that unless insurers align their definition of a claim with the new FICS definition, the result will be detrimental to FICS members. The terms and definitions in insurance policies will be vitally important.”
Halsey said there appeared to have been no consultation or approval period attached to the change.
“We are surprised by FICS’s interpretation of the decision in this way,” he said.
FICS made the change in response to comments by federal court judge Ray Finkelstein last year over a case involving the collapse of Westpoint.
A planned increase to the monetary limit will be announced in the coming weeks, FICS chief executive Alison Maynard said.
