At a recent Moonstone Compliance Conference, one of our compliance officers, Bronwen Allan, did a presentation titled “PI Cover and the rise of claims”.
Her view is that a compliance officer who better understands the risks that the brokers face, can do a better job of building risk awareness into their everyday procedures.
There appears to be an increase in PI claims related to advice on short term products and a decline in investment related ones.
This, in turn, leads to PI insurers applying policy conditions and terms more stringently. If the trend continues, we may well see a rise in premiums to levels which may become unaffordable, as happened in the UK.
One opinion is that many FSPs’ income is not increasing proportionately to operational costs. This is often compensated for by looking for opportunities to minimise the cost of servicing, resulting in mistakes being made which leads to increased PI claims.
Another big factor in the rise of claims is the increase in complaints to the Ombud by aggrieved policyholders after claims are repudiated by insurers. A quick look at the year on year increase in Ombud cases will support this claim. There are cases where the industry Ombud may agree with the Insurer’s decision, but then refers the matter to the FAIS Ombud for investigation. We have covered in previous newsletters the FAIS Ombud being the Ombud of last resort, as well as the advent of a Super Ombud in our new regulatory landscape.
A new element in the Ombud rulings specifically seems to be gaining profile. It appears that fairness, rather than legal provisions, are now driving determinations, in line with Section 2 of the General Code of Conduct.
Advice from our preferred supplier of PI cover suggests that careful monitoring of complaints is an important preventative measure as complaints help identify trends in the business and can result in PI claims if not managed correctly.
We wrote a series of articles late in 2014 on the subject of complaints management. You are welcome to click here to read the first.
Our search facility on the website will also provide access to the other three articles on the subject “complaints management”.