Mortgage advisers have voiced their frustration with skyrocketing PI insurance premiums, which they say have been hiked unfairly despite the mortgage sector presenting a very low risk of expensive claims.
Advisers have been receiving their premium renewals, and some have gone up by as much as 300% - a hike which coincides with the start of the new regulatory regime, and which insurers have put down to a “lessened appetite for PI cover.”
Commenting on the rising costs, iLender adviser Jeff Royle noted that in this year alone, dispute resolutions services FSCL and FDRS received approximately 50 complaints, of which 90% were resolved internally with “not a mortgage claim in sight.”
He said the mortgage sector is being unfairly penalised for the higher risk profiles of other advice strands like investment and risk, and urged insurers to consult with the industry to get a better understanding of its risk profile.
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“Right now, we’re insuring for something that doesn’t exist,” Royle told NZ Adviser.
“I’ve always asked the question of what a mortgage adviser could do to trigger a substantial PI claim, and no insurer has ever been able to answer that question.”
“We seem to have been bundled together with other adviser categories, and we’ve known that premiums would likely be hiked, but it’s the high level of premium increase that is really significant,” he explained.
“PI premiums are going up by nearly 300% in some cases with nothing we can see to justify it. There’s no claim history in New Zealand that would indicate that we have a problem, so they’re over-compensating for something that doesn’t exist.”
Advisers are currently being asked to have $2 million in PI cover, and are also facing rising compliance and CRM costs as the new regime comes into full force. Royle said this has been particularly tough on small trader businesses, particularly as some insurers look set to pull away from offering PI cover to sole traders entirely.
He said the fact that dispute resolution schemes were not consulted by the insurers is also disappointing, as they would be able to provide the most accurate information around mortgage adviser complaints and claims.
“If anybody knows the level and nature of complaints in the industry and how they were resolved, it would be FSCL,” Royle said.
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“But they weren’t consulted, so the insurers are not going off factual information.”
“The biggest issue is that there’s no dialogue or transparency,” he added.
“We should have some open dialogue, and look at the statistics around the mortgage arena for the last 10 years.
“We’ve had a regulatory framework for that amount of time, so let’s see the stats - how many claims have there been for mortgage advisers, what was their monetary value, and what triggered them? At the moment the insurers just don’t know, and none of the banks have been able to answer where the $2 million cover requirement came from.”