Watching the market from a distance to understanding the dyn-amics better, it seems obvious that there should be improved cover for certain classes of business.
If we look at the current market, it is important to understand what the drivers are. Premiums are on the increase and cover is becoming scarcer and in many cases not obtained.
Networks and support service companies seem to have been able to buy bulk policies which allow independent firms to get cover, albeit with the proviso that they have to join the particular company, whether or not they want to subscribe to their services.
Some of the directly regulated firms are unable to get cover despite no claims history because their turnover is too low. Individual firms have been able to get waivers even although this option will disappear in January when the EU insurance directive comes into force. This is unsatisfactory, considering some of the companies affected.
There is therefore a need to assist brokers and underwriters with a greater understanding of the certified financial planner licensee and the workings of a fee-based financial planning business, which is a big part of the institute's membership.
It is obviously in the underwriter's interest to continually improve the book of risk that they are running. Dealing with one contact within a network or service provider has to be in the interests of the broker and underwriter when the risk can be managed across a bigger number of firms with red-uced cost and a transparent process and compliance reg-ime. As is often the case, this consolidation factor makes it easier for all parties to benefit from the economies of scale.
The challenge is to present a different case in a similar format. What will help brokers and underwriters understand that there is a reduced risk from considering the businesses of fee-based financial planners. A suggestion made to one underwriter was that they should include a question on their application forms about submitting current business plans.
The reply was that they would not want to encourage a load of extra paper. The reality is that it would be unlikely that they would because too few businesses have actual plans in place. With a clear plan, however, there is already a reduced risk because there is management control and in particular management of risk in place. The key elements that many financial planning businesses would be able to align behind would be:
The number of certified financial planner licensees within their practice. For the cover to work, there would have to be a majority of planners suitably qualified (clearly, 1:20 would not be any good).
A certified financial planner licensee is also able to demonstrate professionalism. They are part of a strict disciplinary code, have requirements to submit relevant CPD records of 30 hours a year and have also had to have at least three years relevant experience.
The business itself has got to have a clear proposition and processes. Even without the menu, fee-based planning businesses would usually have letters of engagement clearly setting out what they do for the client along with a tariff of charges, etc, which the client would ordinarily have signed as well. All this helps to reduce the risk of the business. Planning with a process and efficient use of quality technology delivers a professional service with a full audit trail. This has to appeal to underwriters of PI insurance risk.
Most of the CFP returns that we have contain few or no complaints.
The institute is looking for a scheme for those who can evidence the behaviours and disciplines discussed. Over time, the hope would be that we could then consider, with a strong track record, a reduction in premiums, which has been achieved by similar practices in the Australian market.
Nick Cann is chief executive of the IFP