Reporting obligations to the Professional Standards Council

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Reporting obligations to the Professional Standards Council

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The Institute limitation of liability schemes (the Scheme), approved under Professional Standards legislation, are now operative in all mainland states and territories. With the benefits of participation in the Scheme, there are also obligations. The Institute now has an obligation to implement risk management strategies to improve the occupational standards of its members and under Professional Standards legislation must lodge a report annually with the Professional Standards Council (PSC) regarding:

the implementation and monitoring of risk management strategies, the effect of those strategies and any changes made or proposed to be made to them
the compliance of participating members with PI and disclosure requirements
the monitoring of claims made against members

The Institute report to the PSC includes an aggregation of the member responses to the annual Institute Limitation of Liability Scheme Questionnaire which is sent to all practices and independent Certificate of Public Practice holders. In this Questionnaire, members are asked to provide details of their Professional Indemnity Insurance, compliance with the PSC disclosure statements as well as information about any claims made against them over $500,000.

The information collected from the Questionnaire responses not only fulfils our obligations to the PSC but is also useful in providing comparative information to members.

PSC Risk Management Report – Year 1
Links:
The Institute: read the public version of the PSC report
The Institute: liability capping schemes web page.

On 31 March 2009, the Institute lodged its PSC Risk Management Report (the Report) for the first year of the five year term of the Scheme. This Report represented responses from over two thousand practices whose cooperation is greatly appreciated.

The Report showed that the liability capping schemes are contributing to the raising of standards of service as well as raising the level and standards of PI insurance, thereby delivering benefits for members and consumers.

PI trends
The results of the member survey reflected the relatively soft PI market in Australia currently, and showed:

A high level of member compliance with the Institute's PI requirements
Premium costs for PI were relatively consistent across states
The majority of members' premiums constituted less than two per cent of gross fees
Members were generally able to obtain PI policies which contained favourable terms for the payment of defence costs in addition to the limit of indemnity set out in the policy.

Claims data
The schemes are still in their infancy, so the claims data collected doesn’t yet demonstrate how effective the schemes will be. However, the data will allow comparisons to be made in future years regarding the nature and causes of the claims. There were still some conclusions from this year that will interest members:

Although there were relatively few claims reported during 2007 or 2008, early indications are that members are not immune from large claims in relation to relatively small engagements. It appears that for these pre-scheme claims, where the amount claimed is greater than the amount of PI cover held, the member’s personal assets could be at risk
It will be when the claim relates to a situation occurring after the commencement of the scheme that the schemes are likely to be tested in the Courts and the benefits of the liability cap will be seen
Although only 28 per cent of reported claims had been settled, the settled amount of the claims tended to be lower than the original claim notified
Most of the engagements where technical issues form the basis of the claims were tax engagements, with some also relating to financial reporting and valuations.

Next steps
As the PSC report is an annual obligation under Professional Standards Legislation, the Institute will be issuing a new questionnaire for members shortly. Requests will be sent to coincide with the lead up to members’ professional indemnity renewal dates. The Institute will use this opportunity to provide independent guidance and analysis of the PI market, to help members secure a competitive policy that best suits their needs.