Professional indemnity insurer NZI last year wrote to advisers saying it would no longer offer cover to FAPs with three or less advisers.

However, it is now offering cover to this group of advisers through a scheme with Financial Advice New Zealand.

Curated Risk adviser Clinton Stanger says insurer are changing their approach to providing PI insurance.

Previously it was a bottom up approach with individual financial advisers, now it is moving to a top down approach starting with Financial Advice Providers.

“The new regime presents a change in this structure,” he said. “There will be a top down focus from the FAP to the individual adviser.”

Marijke von Molendorff, central region manager at Marsh & McLennan said that the Financial Advice NZ scheme importantly covers legal costs and settlements.

“These are normally excluded in most PI policies, however we have managed to get a write-back to provide our advisers this protection.”

FAPs who have taken on a $1-3 million limit on their policy will have cover up to $100,000. Those with a $5 million limit, will have up to $250,000 of cover for settlement and defence costs.

Advisers voiced concerns of how they would be covered if an allegation is made and the adviser is then found not guilty.

Von Molendorff said that she had raised this example with NZI and there is now an additional endorsement onto the policy called a ‘disciplinary hearing reimbursement’.

“What this write-back does, is if any proceedings relating to fraud, criminal conduct and the allegations of such are dismissed, the insurer will then pay up to $50,000 covering an adviser’s defence cost and their representation during the proceedings.

“This is a great win for Financial Advice NZ members,” says Von Molendorff.

Existing members of the group who remain single adviser FAPs will face no increase to their insurance premiums. Variations of cover are available with FAPs with more than two advisers. Unless a FAP includes more than 12 advisers after which special exemption must be received.

Katrina Shanks, CEO of Financial Advice NZ, previously told Good Returns that NZI exiting the PI market was an “opportunity for other providers to come into the marketplace”.