Reporting obligations to the Professional Standards Council

Key Points

  • The Institute must report annually to the PSC re the implementation and monitoring of risk management strategies as well as:
  • the compliance of participating members with PI insurance and business stationery disclosure requirements and
  • the monitoring of claims made against members

PSC Risk Management Report

The Institute Risk Management 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.

Results from the Institute limitation of liability scheme Questionnaire

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 2010 results of the member survey showed:

  • A high and steadily improving level of member compliance with the Institute's PI requirements
  • Premium costs for PI remaining stable and relatively consistent across states
  • The majority of members' premiums constituted less than two per cent of gross fees
  • There was no evidence of members being refused PI in relation to specific services, of pressure on the PI policy excess or more restrictive PI policy terms 
  • 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.

Members displayed an increased awareness of the terms of their PI policies, assisted by Institute support material provided for PI renewal as well as ongoing communications.

The results also reflected the continuation of a relatively soft PI market in Australia.  This was contrary to expectations that the difficult economic environment following the GFC would lead to a hardening of the PI market.  Our understanding is that this soft market has been maintained due to the number and value of claims not increasing as expected, Australia being attractive for global insurers as a result of its performance in avoiding the worst effects of the GFC and the legal environment with liability capping and proportionate liability in place.    

This is in marked contrast to the experience of financial planners. We have had feedback from members and PI brokers that financial planners have seen significant premium increases over the last three years.

Claims data

Although not conclusive, The following reflect patterns which are emerging regarding claims reported over the last three years:

  • There was a significant reduction in the number and value of claims reported in 2010
  • As in previous years, there were relatively few claims greater than $500k reported 
  • The reported claims show that members are not immune from large claims in relation to relatively small engagements. It appears that where the amount claimed is greater than the amount of PI cover held, the member’s personal assets could be at risk
  • By 2010, 56% of claims reported between 2007 and 2010 had been settled. The settled amount of the claims continued to be significantly lower than the original claim notified. The majority of claims are settled rather than progressing to court and we have been advised that the thresholds set out in the Institute scheme, together with proportionate liability, play an important part in the negotiation of these settlements 
  • In 2010, claims related largely to negligent advice and the failure to provide advice or services.  As in previous years, most of the engagements where technical issues form the basis of the claims were tax engagements.

Action point for reader (if relevant)

The Institute has an annual obligation to report to the PSC and will be issuing a new questionnaire annually to members to coincide with their PI renewal. 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.

Article last updated 7 June 2011