Addressing the Association of Independently Owned Financial Professionals conference in Hobart on Friday, Asset Insure national manager for professional risk, Ewen McKay, said there are inherent conflicts between regulatory requirements and the realities of the commercial insurance market.
“Generally, PI insurers have always been supportive of EDR schemes because they provide a relatively low-cost vehicle for conciliation,” said Mr McKay, who also sits on the PI committee of the Insurance Council of Australia.
“However, where we diverge with regulators and the [Financial Ombudsman Service] is a growing concern over FOS being used for larger disputes – particularly where there are multi-parties, some that may not come under FOS’s jurisdiction,” he said.
Regulatory requirements outlined in ASIC Regulatory Guide 139: Approval and oversight of external dispute resolution schemes are in “inherent conflict” with some of the assumptions underlying PI insurance offerings, Mr McKay said.
For example, Mr McKay explained that the purpose of PI is to protect the insured, not the claimant, but that regulators and governments – aided by lawyers – have used this “misunderstanding” to “fill gaps in the market”.
“Consumer protection is a fortunate outcome of PI insurance, not its purpose,” Mr McKay said.
PI insurers also question procedural issues at FOS, including the lack of right to appeal and the lack of legal reasoning, as well as the growing trend of increasing the monetary limits of compensation.
“The limits have risen from $50,000 a few years ago to $280,000 now and in my discussions with ASIC, I know that some in ASIC would like to see this raised as high as half a million,” Mr McKay said.
“I can tell you no PI insurer will be covering FOS claims of $500,000,” Mr McKay said.
