Prepared by Julia Winzar
ASIC recently undertook a review of the “adequacy” of PI insurance held by small AFS licensees. The results of the review were positive, with only 5.4% of those licensees reviewed not meeting the “adequacy” requirements.
One of the key issues licensees have faced with PI insurance is satisfying the “fraud and dishonesty cover” requirement. This requires the licensee’s PI Insurance to cover acts of fraud or dishonesty by directors, employees and other representatives. As part of the review, the two insurance providers involved have worked with ASIC to amend their standard PI insurance terms to provide clarity to licensees and ensure that fraud and dishonesty cover is included.
The important takeaways are:
- You should review your PI insurance at least annually to ensure it remains “adequate”.
- Your PI policy should be reviewed against the minimum “adequacy” requirements set out in ASIC RG 126, including ensuring that fraud and dishonesty cover is included and that any defence costs are ‘in addition’ to the minimum indemnity limit ($2 million for small licensees), or the indemnity limit is otherwise increased to cover these defence costs.
- You need to fully understand your PI policy, including any limitations and exclusions.
- You should notify your PI insurance provider of any material changes to the business.
AFS Licensees need to be aware that they are ultimately responsible, even where they use an insurance broker, for ensuring that their PI insurance is “adequate”. So it is critical to get your PI insurance right.