Polina Kesov On What Your Property Advisor's Insurance Covers

In this episode, we look at a part of the property advice industry that rarely gets much attention until something goes wrong, professional indemnity insurance.

We unpack how PI insurance protects buyers, agents and property investment advisors, why that protection also matters to clients, and what it reveals about the quality, accountability and risk controls behind the advice that you're relying on.

We're joined by Paulina Kesshoff, an insurance advisor with more than 20 years experience helping Australian business owners understand risk, claims and the realities of staying properly protected.

With her help, we want to explore what type of advisor might struggle to get PI insurance and why that should matter to consumers, how transparent the system really is when things go wrong and the growing use of AI and property advice and how that's starting to reshape liability, trust and cover across the industry.

welcome to the elephant in the room this is the podcast where we love to talk about the big things in property that never usually get talked about i'm veronica morgan real estate agent buyer's agent and buyer's agent mentor co-host of foxtel's location location location australia author of auction ready and co-host of your first home buyer guide

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Our guest today is Polina Kesshoff, an insurance advisor who has spent more than two decades working alongside Australian businesses on the realities of risk, claims and insurance cover when things don't go to plan.

Her focus is on professional indemnity, giving her a clear view of how advisors are assessed, insured and held to account behind the scenes. Welcome, Polina. I am sure that today we're going to uncover more than one elephant in the room. So are we really pleased to have you here today?

Thank you, Veronica. I'm so excited to be here and excited to share my knowledge so somebody can be saved by getting the right professional with the right cover.

Well, I think that's kind of where we want to start. Thanks for joining us. I mean, obviously, PI insurance or professional indemnity insurance is a big sort of something that we need, right? It protects, you know, people when they take out a professional.

I always had a belief that, you know, you've got to be really buyer's beware in the property market. But then a lot of people engage property advisors, buyer's agents. And so, like, what protection do they need to have? And do they have it? And, you know, what is it?

Who does it really protect?

Absolutely. That's a really, really good question. This is where I'm going to start from. When a consumer goes and gets a professional to help them, it's never in front of their mind to check if that professional is insured. They're usually looking for credibility on the market.

They're looking for longevity on the market and what kind of solutions they can provide them with. But it's not a question that they ask, are you properly insured? It's something that should be asked. But when we go see a doctor or a lawyer or an accountant, we don't ask that either.

Well, professionals that are giving advice in any shape or form, whether it's written or verbal, should have professional indemnity insurance in place.

Real estate professionals that are licensed or working for a licensee must have it by law, must have, for example, in New South Wales, at least 2 million in cover valid all the time. Does it mean they get that? Well, that's a question, right?

Because I have seen all sorts of professionals in 20 plus years in my career.

But for a consumer, that's really important because if something goes wrong and they suffer a financial loss and they go after that advisor that has given them possibly an incorrect advice, and if there's no professional indemnity insurance in place, how are they going to recoup their losses?

It's not always easy to sue somebody and know that they've got assets that they can come after. So it's really important for a consumer, but it's really important for a professional.

So if anyone is listening to us today and they're a buyer's agent, real estate agent, property investment advisor, or anyone that's working in the property space and giving advice, have professional indemnity. Sleep well at night, focus on your business. It's not that expensive versus the amount of coverage that it gives you.

So I've been hearing stories though, that not all property investment advisors or buyers agents or both can actually get PI insurance. So I guess, what does it tell you about an advisor if they either can't get it or choose not to get it? And how should consumers interpret that risk?

Absolutely. Look, it's not a matter of not being able to get it. Anyone in that profession can get it. The problem is there's only one or two products on the market in Australia currently. Not a lot of property investment advisors know about that.

Also, a lot of buyer's agents are doing pure buyer's agency, or sometimes they do a hybrid, property investment advice and buyer's agency. They rely on a traditional real estate policy that says for buyer's agents or for real estate agents.

They don't read the fine print, and the fine print would always say, excluding any property investment advice. No one reads the small print. Then they give an advice. There's a problem. They reach out to the insurer and say, I want to make a claim.

And the insurer says, but we've never covered you for these activities, which is a problem. So anyone can get it if they need it. Yes, it's a little bit more costly than just getting a traditional professional indemnity for real estate professionals.

But we provide a specific product, for example, that strictly states that it is including property investment advice. And then all overriding activities of a property professional. So anyone can get it. It's just an awareness.

That's what I'm trying to do so hard these days is just speaking to a lot of property professionals saying, check your policy, not only the price, but the fine print. Then they read it and they go, oh, but no one's ever told us that. Well, that's the problem.

But from a consumer's point of view, there'd only be certain things that you could come back and say, I'm not happy with that. You can't go in and say, hey, you told me to go up by 40% and it went up by 4% or went down.

You can't sue them for, I guess, forecasting or can a consumer go to a buyer's agent and say, hey, you gave me bad advice? What are some of the things consumers could do?

Sure. The reality is anyone can say anything, but they have to substantiate their claim. And it has to be a pretty good evidence to show that the advice that they've received caused them a loss, right?

And from what I know, dealing with lots of property professionals on a day-to-day basis is that most would say, you still have to talk to your accountant, your financial planner, your lawyer, get all the ducks in a row so that you know you're definitely making the right choice.

Also, they, I presume, and I really hope that everyone has a disclaimer saying that things can change because we live in the world that changes every day. So anyone can make a claim. It doesn't stop anyone from saying, hey, you've given me the wrong advice. I'm going to sue you.

But they have to substantiate it. And if they do have enough evidence, well, then there is a claim. If they don't, it's just an assumption. Well, the insurer that represents the property professional will come back and go, we believe we've done all the right things.

He's the backup of all the information that we've provided.

I don't know. Let's say I'm off the plane. I was spruiking off the plane for like 10 years. And I know that the performance of those apartments, for example, have been really poor. All the evidence proves that. But I'm still able to sell them saying, hey, you know, Things can always change.

Make sure you speak to your advisor. How is this getting past property investment advice? Because you can say whatever you want. You can say, oh, the future is going to look rosy. But if all the past evidence proves that this is not a good decision, how do they get around it?

Remember, it's only a projection that they provide. It's not a definite guarantee. And that's how they come around it.

But if they haven't given enough due diligence to show the client that there's possibility of market going up or down and the cash flow might vary and all the other things that may vary, well, then they're exposed.

Because it's not good enough just to say, hey, you should buy this property because you're going to make a lot of money, right? They're going to back it up with a lot of data.

And that's where property investment advisors are strong in, I believe, by providing a lot of data for a client to make an educated decision. But it doesn't stop the market from changing and for the advisor to be exposed, even to fight it in court and say, no, I was right.

That's the costly exercises to be able to defend themselves. Then you've got an insurance policy that would protect you from that and provide your legal professionals to do that on your behalf. But there's good advisors, there's bad advisors, there's everything in between.

Some work on, oh, you know, that worked really well for a lot of my clients. That's not good enough. It works perfectly when there's a lot of backup of information and analysis for the client to go, okay, I'm more comfortable. Yet things can still go wrong.

So you've got a security blanket called professional indemnity insurance.

So if an advisor has had claims made against them, how visible is that to the public? And if something is settled out of court, is there any way for a client to know they might be dealing with a repeat offender?

Sure. I don't believe that there is a register that notes those repeat offenders. If there's somebody that's done a huge crime and that happens, maybe not so much in your space, property space, but in a lot of other professions, they get deregistered as directors from ASIC, for example.

So you can always do the search on ASIC to see if that person is able to trade or not. But otherwise, unfortunately, there's not such a register. more often or not, these type of claims end up in AFCA, which is the Ombudsman for Financial Services. And then they can publish and blacklist others.

But at the end of the day, we are operating as a consumer on a lot of trust.

And so there's no like, they can basically provide research to back up their clients. So as long as they're providing a very good, well-documented process that supports their argument, plus they've got all the disclaimers in there. That's sort of enough to protect them, right?

And even if they, you know, if they believe their strategy doesn't work out for the consumer, and they might even upfront know that, you know, like they could have been other options for them to do, but they've decided to pursue this strategy.

There's no real protection for the customer around the performance of it if it's documented well, right?

I think documenting is the only way forward to be able to protect the customer and the business that's providing advice. There's nothing really in between. However, you know, in any profession, we need to know our clients, right?

And if we know that's not gonna work for somebody and it's a particular property that you want to sell them, you wouldn't do the wrong thing by them. But it still happens, unfortunately. But that's why property advisors rely on other professionals to give other parts of advice.

So accountants, financial planners, those that have the special expertise to say, is this particular scenario best for the client? But otherwise, look, documenting it is the best way.

So that's really, I mean, that's a good point you made about financial advisors. So like a lot of property investment advisors, right, will get a client through content marketing, which is already a bit dangerous. Secondly, it's like, oh, look what I've done. Look how well I've got a Ferrari, blah, blah, blah.

Come see me. You know, 50 of my clients have done this and they show all these like quick gains that they've made over the last six months with fake, you know, with really attractive bank valuations. And so there's misleading marketing, I think, upfront on short-term returns. And look, it's got to work.

I've got a Ferrari, right? Like that's a lot of the pitch. But then when they come to them, they then overlay it with, oh, I can build you wealth through accelerating your wealth through some type of strategy. And I can buy like...

I'll do this and I'll do that and I'll get equity out and I'll buy another one and use this structure. And so they move away from like, hey, this is the type of property that would make a good asset to come join and follow my process that I've done for many clients.

Because this is skirting into financial advice. Where's the line where a lot of these property investment advisors really should be stopping? And where's the line which is very clearly in financial advice territory or accounting or tax?

Well, I can tell you how the insurers view that provide professional indemnity for property investment advisors. Their preference is to only take those that have done a QPIA course. for example, through people or similar. There's a few others on the market currently.

The reason being is they believe that at least by doing a course, they stay within their frames, right? And they're not going into that financial planning advice because that's not their area of expertise. The area of expertise is property and property only.

So anyone that goes outside of that scope, unfortunately, they're in danger of giving advice that's not going to be covered. And then it's a danger for the consumer as well going, well, they're not a financial planner. Why are they giving me all this advice about building wealth?

You can talk about property being one of the vehicles for building wealth, but it's not a guarantee that that's going to make you somebody that just drives Ferraris.

The thing too is that, like you're talking about documentation, you can document really bad research. You can document all the wrong conclusions. You can document all sorts of stuff. And I've seen some really terrible rationales that are all very, very logical and all backed in data.

But you can have a lot with statistics, right? I mean, you can do all sorts of things with numbers.

The very fact that you do this documentation, does that sort of protect an advisor from the bigger or reduce their risk, I guess, of having a successful claim against them and increase their ability to defend a claim to say, well, look, you know, I'm sorry you lost money, but I did have a disclaimer saying that markets change and look at all this background work I did, you know, yes, it didn't work out because markets change and, you know, as it turns out, I was wrong, but, you know,

I don't have to suffer the consequences because I've been a good boy or girl and I've shown my workings. I'm being cynical here, but I feel like that's sort of what you're saying.

Absolutely. It's still a little bit of a gray area, right? Because it's not a regulated industry, but there's no set of rules that everyone has to follow by the book. And that's where the problem is at the moment, right? So at the end of the day, it will only reduce their risk.

if they've got it well documented. But have they done good enough research for that individual that's going to make a claim? Well, that's, you know, on the individual basis. Not showing anything at a time of claim is a big problem for an advisor. Showing enough reduces their risk.

And then the insurers would look into How well did they look into it? What other professionals did they liaise with to go, hey, is Mr. Smith or Mrs. Smith or a couple more suitable for this type of purchase? And how likely were they going to lose the money?

How likely were they going to suffer any loss? But it's still a very gray area. So that's why we call it a security blanket. It's not a full-on protection because at the end of the day, the decision is also with the purchaser.

They've got to take some accountability for the decisions that they're making.

And also, I mean, at the end of the day too, they won't know. Usually they don't know straight up, unless there's some glaring due diligence mistake or error or hole where when they settle, they're like, why didn't you tell me about that?

But look, when a claim is made, what actually happens behind the scenes? Do premiums rise? Do insurers impose conditions? And I guess, does that effectively act as a form of discipline on a

Absolutely. Anything can happen depending on the claim, the size of the claim, and the reason why the claim is successful. If it's an advisor that completely didn't follow the process, just didn't do the right thing by the client, the reality is they're unlikely going to have a renewal term offered by the insurer.

Because no insurer wants somebody who keeps very poor paperwork and poor process.

If it's just a matter of a mistake, and at the end of the day, that's what you get professional indemnity for, and we're all human, we can all make mistakes, and the claim is successful, there are two things that can happen. The premium can be loaded at renewal.

It's only a percentage, and we're never given that percentage upfront, so it depends on a lot of factors. or the excess, a higher excess is imposed at renewal. But it doesn't mean that the advisor can't be insured anymore.

It's only when they completely haven't followed the process or completely negligent or committed fraud. If the fraud is committed, there's never a renewal offered. And then they're pretty much blacklisted by that insurer.

And because there's only one or two products on the market for property investment advisors, that's a big danger sign because how are you going to get insurance? How are you going to continue operating?

So, I mean, a lot of the property advisors in the owner-occupier space is a bit different, right? Like that's helping people buy a home and then even then buying, you know, you've gone to a local specialist in a pocket of Australia from a property investment advisor and

know i want to buy an investment property in the inner west of sydney or something right and this is my budget but if you're going to a property investment group who then says you should buy in this location this is the part we think is going to go up and this is the type of property you should buy this price point it becomes more of a cookie cutter approach right and what happens is they funnel

a lot of their clients all down the same strategy. There's no understanding. Every single client's got different life experiences. And so there's no real advice here. All you're really saying is no matter what your situation is, I'm going to put you into this market.

And then what happens is you'll find that a lot of other buyers agents are also doing the same strategy in the same location. And so they're creating this little money market where they're pumping prices up. How is that like, you know, advice?

It's really just selling a strategy no matter what your situation is. Young, old, one, two, three, four, five, you know, not considering any other things to do with their situation. It's just like, we're going to funnel you into this. Is that, are they protected at all? Or is that a real red flag?

Because they're not really, you know, besides, yes, it's all documented. Yes, they've got great research. Yes, they've got great forecasts. Yes, they've got all the disclaimers, but are they protected from an advice point of view?

So the consumer is protected if they can show the loss. They would be protected under the policy. Is the advisor protected? Yes, because they've purchased the property, and if there's any problem as a result of their activities, that's when the claim kicks in.

But yes, of course, the insurers and their lawyers would then sit down with the insured, being the property investment advisor, and go, okay, why are you funneling everyone into the same? Why is your process just one way? And then they'll put limitations at renewal.

Unfortunately, they're not going to turn around and go, well, we're not going to cover you because you followed that process. They'll just basically give them a stick for what's to come.

But it still protects the consumer because at the end of the day, the consumer may not even know that everyone is funneled through the same.

What have you noticed in terms of claims? Like, are there many? Is there increasing? So there's not many.

Not many, not many at all, which is a very fortunate situation to be in for professionals, property professionals, because there's not a lot of claims in the advice space. There's a lot of claims on the real estate side, even buys agency side has more claims, but property investment advice, not so much.

And the reason being is what I keep referring to It's not easy to substantiate a claim. You have to really show that the advice was so negligent that you've lost a large sum of money. And you also have to show that there's no other way of recouping it.

Because at the end of the day, you may hold the property for a bit, sell it and still not make a loss. If you haven't made a loss, there's no claim.

Right. So you could make, it could be opportunity cost, but it was not actual loss. So, okay. So, but you said that there's more in the buyer's agent space. So let's move away from the advisors then. Tell us about what's happening in terms of claims in the buyer's agent space. Yeah.

In a buyer's agent space, the claims are very interesting, I say. It usually comes down to my buyer's agent told me that the floor is tiled and it wasn't. It was vinyl. And they didn't do their due diligence right.

And now I've got to put this tiled floor because I want to rent this property or I I can't live in this condition. So it comes down to what I call negligent advice, just something that the buyer's agents don't really drill into and look for, but they're very rare type of claims.

It's again, very difficult because with buyer's agency, like Chris said, a client comes and says, I want to buy in this particular pocket of Sydney. This is my budget. And I only want a house. I don't want a townhouse or a unit. The buyer's agents deals with those instructions.

They're not really being on the side.

A financial advisor would call that an execution arrangement rather than an advice arrangement. You know, so when the client comes to you and I talk about it as being order takers rather than trusted advisors, you know, like you're going to be an order taker.

You come to me, you tell me what you want and tell me your budget is, I'll just go and find one of them for you. Whereas I guess you get into sticky and in my business, you know, maybe I'm doing a dangerous thing. We do have insurance, of course.

maybe I'm doing a dangerous thing.

I sort of question really about, well, tell me what you want to achieve with this decision that you've made to buy that property in that area for that budget, you know, because I want to just sense test it to see whether it's likely to deliver what you're hoping it's going to deliver for you.

And if so, great, we'll go and find one of them. But if not, let's talk about that more. Let's tease that out. Let's educate you a bit more about property, about the market, blah, blah, blah. So we would do that. And we've got

decades of experience behind us, and we've got case studies and examples and evidence to back up what we're suggesting. But I would imagine that there's a lot of bias agents that would necessarily, you know, the execution, they take on board what the person wants. They don't necessarily specialize in that area.

So they might, you know, that whole saying that if the only tool you have is a hammer, then every problem looks like a nail. You know what I mean? And I see that happening a lot in the bias agent space.

where you've got advice that is based around your capabilities and what you do rather than actually what the person needs. Now that's a big gray area, isn't it?

Absolutely. And the examples you've described are leaning towards advice. And if you're not covered for advice, then you're just simply not covered. And if somebody makes a claim, you're exposed.

And we're seeing that a lot because I don't know if the market has shifted or our professionals have pivoted a lot in the last sort of 12 to 24 months. but a lot now buys agents and property investment advisors and it's so blended.

They're not even sure which service they're providing one or the other. So it borderlines on advice because it does look at your current policy that you've got in place and make sure that it does not say excluding advice.

So Paulina, when I first met you, and because I do have a broker that is not you, but when I first met you, we had this conversation and I did go to my broker and check on that. So I am covered for advice, but my business is covered for advice.

But yes, that's a very important distinction. And the problem is that people need advice.

Investment advice. So very different. investment advice versus if you're selling to mom and dad to buy their home and you're giving them advice, it's not investment advice. So it's the investment advice that's sort of a highlight in a lot of policies that may be excluded.

Yeah. Okay. So yes, I mean, and the lion's share of my business is owner occupiers, by the way. I mean, we do buy for investors in Sydney, but there's not that many people wanting or can afford to invest in Sydney. So therefore that's sort of slowly gone down over the years. All right.

So what role then do insurers play beyond just paying claims? Are they actively pushing for better processes, documentation and client care to reduce risk? Absolutely.

So most policies would offer a free review of your contracts. and your processes. That's something that a lot of clients don't know.

So you being a professional can ask the insurer, look, can you have a look and make sure that I'm compliant, that I'm not causing the wording that's a bit ambiguous and can lead to a claim if such was to happen. And they'll do it for free as part of your policy.

It's a very underutilized service. that a lot of our clients are not even using. We always let them know that it's available. It's in black and white when we send the paperwork, but it's not really utilized.

I highly encourage professionals to actually utilize it because if you're gonna go to a lawyer, it's gonna cost you a lot of money for them to give you that advice. It's available under your policy before anything goes wrong.

So as long as you already got the policy in place, they'll have a look and they'll give you advice. They'll give you guidance. And if they see something that they will think you need legal professional to have a look and give you a more deeper advice, they'll tell you.

So that's something to know. And also very important things to consider. And I talk a lot about that with my clients. access under the policy. So you've got the level of cover that should never be less than $2 million.

And we are seeing a lot of professionals just buying a million dollars because they want to save money. A big no-no in my opinion, not in today's market. Also access, make sure that it's affordable because you can have a few claims throughout the year. And if the access is say 10, $15,000,

It's not that easy to just part with that amount of money towards your claim. So make sure that it's affordable, maybe 5,000 or less. So that's something to look out for.

And also, if you have not had professional indemnity insurance and you've already been operating as a buyer's agent or property investment advisor, and then you all of a sudden go, okay, I need to get the insurance sorted. That's okay.

Just let your broker or your insurer know that you've already done work, that you've already had clients, so they can move the cover to start from when you had started working.

Don't be exposed because a person can come to you two, three years down the track and go, hey, Veronica, you sold me this house. You gave me advice back then. and your policy has not been in place at that time, you can be exposed.

So we call it unlimited retroactive cover or specific date that you know it on the policy. So those finer details are super, super important. And look at the conditions. Like I said at the beginning, no one reads the fine print. Always redefine. But also rely on brokers.

It's not a policy that's easily available off the internet. Yes, you can go to a few different platforms and buy one, but they're not really going to give you advice. Rely on professionals such as myself to go, I don't understand what this means. Can you explain it to me?

make sure the cover is Australia-wide or worldwide. Because if you are doing work for somebody that's based in Perth and you're in Sydney, you want to make sure that it's a worldwide cover. So, or Australia-wide cover, at least. So you're not sort of limiting yourself and you don't have problems down the track.

But otherwise, look, You should rely on your expertise and what you know for the clients. Let brokers do their job and actually do it, not just give you a price, but go, these are the differences and make you decide what's better for your business today.

Because your business today is very different to how it was before. And it's certainly going to be different how it is in 12 months or 24 months. Because lots of laws are changing. Lots of things are coming into play. So we just need to make sure fine print works for you.

I'm on a personal mission to help more people make better property decisions. You know, most people don't realise that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need.

And what I do is help people with tricky real estate problems, which often masquerade as simple questions like, should I sell my investment property because the interest repayments are hurting or should I buy before I sell or the other way around?

You can connect with me and access all of the tools that I've created to help you make better property decisions at veronicamorgan.com.au. And there you will find resources for first home buyers, details about my buyer's agent mentoring program.

You can connect with my Sydney based property management and buyer's agency teams, Australia wide vendor advocacy, or ask me for introduction to the small group of buyer's agents that I would personally recommend across the country. That's veronicamorgan.com.au.

If you're considering a property move such as buying your first home, upgrading, renovating, or investing, the team here at Alcove would love to help you think through your decision and get the finance right. Please go to alcove.com.au to reach out.

And so when they, if you're example, going to use a property investment advisor, and yes, they might check out on all the credibility elements. So that's all fine. They've been around for a long time. Without asking them around insurance, is there any way to find out

where they've got insurance that you have to basically ask whether they're covered. And have you got the right as a consumer to see that policy?

Absolutely. So anyone can request from any professional what's called a certificate of currency. What that validates is that the insurance is current. That certificate of currency would have a date, not the date of the policy, it would have the date of when it's issued.

And you want to make sure that it's as current as possible. So if somebody got it last week, it's okay. If somebody got it eight months ago, ask them for an updated one.

It's a document that the insurer can issue at any time, free of charge to the professional, so they can show it to anyone they're dealing with. whether it's an individual or a business to go, yes, I'm insured. It's a very limited document, but it gives enough snapshot.

It basically says the company name of the business that the consumer is dealing with, the dates of the insurance, whether they're valid or not, the level of cover. and also what type of profession is being covered. So if it says buyer's agent and they're using buyer's agent services, great.

But if it says, I don't know, rental agent, but they're using them as buyer's agent, well, they need to double check that and go, hold on a second, why does this say this? this is stated. That's the only document. There's no register, not something that's available in Australia.

It has to be requested from the professional. And they should be able to provide it in the blink of an eye, to be honest.

They should. But you mentioned about the fine print earlier. Is the fine print on that certificate to say, okay, so then how does a consumer then sort of go the next step to say, well, I just want to check that you're actually insured for property investment advice?

It's something that they can request as well. And for the professional to confirm in writing from the insurer. So for example, if a property investment advisor buys PI insurance, it would say the business activity in full. It would say property related activities, including property investment advice,

not requiring AFSL currently. So, because that's how it is. So it would actually spell it out. But a lot of certificates I have seen would be very brief. So then the consumer could ask, can you just confirm that in writing? As long as it's in writing,

and it's true, well, then consumer is protected. If it's not, well, it's kind of a problem of the property professional, because they shouldn't just put something in writing that they haven't validated with the insurer.

Look, it would be wonderful if there were registers, especially if there were claims registered, so we could search and go, how many problems did this advisor, or even in my profession, how many problems did the broker have?

Well, that's the thing, because the insurance company, unless you're trying to insure with the same company, they won't have a history of claims. And obviously, if there's only two providers, then they can go to the other provider, right?

No, not the case. So if somebody comes to an insurer, it doesn't matter which insurance policy it is for, the insurer always asks, when were you last insured?

If they say, you know, recently or just about to expire or anything like that, as long as they say, yes, I have been insured, they ask for a claims register for the last, some ask for five years, some ask for seven, some ask for 10 years.

And unless they get that claims register on the letterhead of that insurer they used to be insured with, they do not offer cover.

So you mentioned earlier about, you know, in the event somebody had to claim multiple times in a year and each time there's an excess and it accumulates. Do you come across that often?

Absolutely. Look, you wouldn't have, because it's 2 million. If you buy 2 million cover, you have up to 6 million in a year to claim. So essentially you can have three claims. I've never seen three claims in 20 years in business. So that's good. I have seen two claims.

So, you know, it does happen. Or there could be smaller claims as long as they don't reach higher than six mil in the year.

Yeah. So two claims, even one claim, I think. One claim might be a, I don't know, a particularly litigious client for argument's sake. You know, one claim might be bad luck. You know, a staff member went rogue. I mean, there's a number of things that you might think might lead to one claim.

The minute you get two though, I mean, does your alarm bells go off? Absolutely.

Insurers alarm bells go off. Right away start searching for, you must have a faulty process. You're not following the rules that you should. And what are you doing? So they start asking about processes. They start asking about a lot of paperwork.

And if it's proven that it's just a very poor process, they never offer renewal because they just don't want to insure a high risk type of clients because they're never going to stop paying claims.

If you brought in, you know, the insurance company to review your procedures, I mean, do you get a discount for the fact that they then reviewed your procedures and went like, actually, pretty happy with these guys?

You don't get a discount because we have minimal premiums. And then from there, the premiums are stacked up. depending on the turnover of the business, number of people working in the business and activities. So you're unlikely going to get a discount. As brokers, we have really good relationships with underwriters and insurers.

We often try to help get them to sharpen their pencils. So it's very relationship driven a lot. But if they've reviewed your processes and said it was good, and then if there is a claim, well, you know what? It's kind of on them as well.

I'm not sure about with RAI New South Wales, Veronica, you may know this, but to be a licensed buyer's agent, you've got to be licensed through real estate. Do they do any checking around, sort of PR cover, et cetera?

And then do they only check it when you first get licensed, a bit like home insurance? They check where you got it when you settled the property. There's no ongoing process to check whether you've got PR. How does that all work?

No one really ongoingly checks, I believe, but for an insurer, they would never issue terms or provide an offer to insure a business or professional, unless you fill in a thorough proposal form. In that proposal form, they will ask for your qualifications and your experience, right?

More often than not, we're seeing they're asking for a full CV as well, because they want to tick it off and know. But it's every insured, doesn't matter what profession you're in, has a duty of disclosure, right? It's up to us. It's up to you to disclose what you know about yourself.

And if you have hidden some facts and the insurer finds out, your policy can be voided. So it comes to honesty and integrity and providing the information. There's no... no way otherwise.

But I believe that lots of organizations and associations annually ask to provide confirmation of their insurance. And if they're not, it should be something that be formed part of the process.

REBA, the Real Estate Price Agents Association of Australia, they do. The REIs don't, but also you can be a member of an REI and you're not a licensee in charge, so you don't actually need to have the insurance. If you're a licensee in charge, you have to be insured, but

If not, you are covered by the insurance of the licensee in charge, assuming the licensee in charge has insurance. So I guess employees working for a business that isn't insured, I guess there's a problem. Also, a lot of people in the real estate space are contracting.

to a business where there's a licensee in charge and they have to, if they're a contractor, they need to also, in New South Wales anyway, they need to be a class one licensee themselves, which means they also need to be insured themselves.

So, but I know a lot of people have no concept of what their obligations are under these circumstances. So it's a bit scary. But Paulina, with more advisors using AI in their research and recommendations, how are insurance thinking about liability?

And could this create a sort of divide between advisors who can get cover and those who can't? You said everyone can get cover before, but does that change things?

At the moment, we haven't seen any publications from insurers that impose certain rules around AI. Of course, they look for quality in the advice, right? And lots of due diligence and basing it on individual circumstances rather than just using the same template for everyone. But there's no restrictions.

on use of AI or how deep you need to use the AI to do the research. So as far as the insurers are concerned, they're not too concerned about that because advice is advice. But will it change in the future?

I think it will, because we're seeing a lot with our clients, the use of AI is on the rise. And unfortunately, it's not always specific to an individual they're dealing with.

No, and also it's the type of AI that people are using. We've got Luke Metcalfe, who's a data specialist, AI specialist. He's been in this space for decades and he's coming back on the podcast in a few weeks and we're going to be talking specifically about this.

He's run some tests with ChatGPT and some very interesting findings, I will say, but a lot of people We're all using AI. We don't all understand necessarily where the AI is getting its information from.

And I think that's something that's very critical for anybody, particularly if you're trying to do it yourself or if you're relying on an advisor, you want to know how are they using this information? Where are they getting it from?

Do you think, you know, I'm curious, like from a consumer point of view, what are the key questions that people should be asking themselves, but also their advisor about their insurance cover before they engage them?

So definitely should first of all ask, are you insured? And can I get a certificate of currency to confirm that? It's not offensive. It's okay to ask for it. So then they put a tick. Yes, the advisor I'm using or the bias agents I'm using, they're insured.

So then they've got a peace of mind. If they need to make a claim, they know which insurer to go to as well. So that process is ticked. They should also ask a simple question like you've just mentioned. Where are you getting this information from? What's the source that you're relying on?

I think that's really important because that will expose a lot of advisors because if they're getting it from not reputable sources, and I would say in a lot of occasions, ChatGPT might not be that reputable because it's not showing where it's coming from. Sometimes it does.

So I think that would protect them by saying, where are you getting it from? Can you show us historical data of that being successful? And in my opinion, as a consumer, and at the end of the day, we're all consumers in our own right somewhere, right?

Is to be able to speak to somebody that has used services of that advisor and see what their feedback was. I think that would give a lot of confidence as well. But from the insurance point of view, it's just confirming that they actually insured and that it's valid.

Because don't forget, if they stop paying for it, it's not valid anymore.

No, well, that's interesting. I was talking to, a while back, I was talking to some people who work at the Office of Fair Trade in New South Wales, and I'm pretty certain this would be the same in every equivalent body across the country.

And they were saying that complaints against buyer's agents were on the rise. So they may not necessarily make an insurance claim or try to sue them, but they're complaining for various reasons. And so I guess when you talk to somebody who's used a buyer's agent and they've had a poor customer service experience,

then that's the type of complaint they're getting. They're not necessarily getting bad advice complaints or that they didn't do their due diligence complaints or that the market is tanked and I'm stuck with this dog complaints, that sort of stuff. Because those sorts of things take years to materialize.

And I did speak with another insurance broker a few years ago and I was pretty horrified actually. His attitude was very much like, well, look, there's very few claims and mainly because they can't put together a body of evidence to show that they've been given bad advice.

Now, that's scary because early on when somebody just buys a property at the beginning, there's a fair amount of euphoria. And that's where all the five-star Google reviews come from. You know, from that at the point of which, hey, I did it. I bought a property. Yay.

And I like to see reviews that are from a client five years after they bought, you know. even longer to say, are they still happy? Are they certain that it was the right decision? Were they left with any unpleasant things that they had to manage that they had no idea about?

I mean, these are the sorts of reviews that'd be really valuable for clients, but you don't get them because people often don't know that they were stitched up until they need to do something different. Or do you suspect that maybe that's one of the reasons why there are so few claims?

Yeah, absolutely. Look, first of all, what I need to say, and I'm very sort of passionate about that, a general public always says insurers don't pay claims. That is not true.

I believe if there's coverage that has been provided to the person that purchased the policy, the insurer will look to pay a claim. It's very different. They actually look to pay a claim. So they take it on a bit of a face value when somebody complains and says, I've suffered the loss.

This is what I think, and this is the documentation that supports it. So they work with the claimant to help them as much as possible. But a lot of times it's a bit emotional. There's no actual financial loss and it's more of a complaint.

Like this agent was so rude when I called them back after I've purchased the property and they wouldn't help me. So insurer would then refer that person back to the fair trading. It becomes more of a consumer professional issue.

So yes, there's a low level of claims where there's a financial loss in play, but insurers would still, if possible, if there is a loss, they will pay the claim. They'll look to pay the claim. Reason being, they also don't want to end up in the media.

They don't want to end up with complaints about the insurers. It's costly, it's unnecessary. And they understand that no one makes a claim unless they're very emotional about that.

So they try to deescalate the situation, help the advisor in Ulsa to deal with it so they don't have to worry about it too much. Because once you've purchased the property, you should be able to focus on your profession, not on the claim. So they take that burden away.

Yeah, it's interesting, isn't it? Because even the very fact that the insurance company is motivated to settle as opposed to defend means, again, that there's no transparency for consumers around this. But also, you know, you just said it.

It's like, well, you should be able to focus on moving on in your business rather than have to focus on this claim. But in reality, I think if you've got bad business practices that have led to a claim, then...

I think you should be focusing on that personally to make sure that you don't just keep blundering along.

Look, to me, reputation is key, regardless of what you're doing. So you've got to protect your reputation and you can only do that by proper processes and customer service. Everything else, anything can happen in the world. You can't control that.

So at the end of the day, an advisor should be in short, a consumer should be sure that if there's a problem, they've got an avenue to help themselves. But in between is always that person that's stuck in the middle, that's always going to say, I haven't done anything wrong.

Then they've got to support that. And it becomes a little bit of a battleground. But look, most claims we're seeing these days getting settled a lot faster than they used to be. Because the property market is more understood now than it was maybe 10, 15 years ago.

But the key thing I'm sort of trying to pick up as well is that only if you lose money, right? So if you buy a property, it goes up, it's maybe even, you know, technically you're probably losing money when you're adding step duty, selling costs, maintenance, et cetera.

Maybe that's not even factored into it. It's just like you bought it for 500 and it's worth 500. So unless you, and if it's not a significant loss, then it's probably not also a claim.

So you basically, as a property investment advisor, you could probably get away with it if anything you recommend doesn't lose money from a dollar point of view.

So as long as you're not going anywhere in any mining towns or you're not putting people in like ridiculously into high risk markets, you don't have to pick the best one.

You could just say, I reckon whatever this is, this could be a good investment for you based on all this research that I basically do. And as long as they don't lose money, significant amount, I should be fine.

But if they do lose a significant amount, as long as I've got all the protections, I put all the disclaimers in there, I'm protected as well. So from a consumer's point of view, they still aren't that protected, right? Like they really haven't got...

They could have to give you a beautiful forecast returns. I've seen some of these and they're like 7%, 8% capital growth rates and all this stuff. And it looks amazing on paper. It's got all the disclaimers, but really, as long as that doesn't lose a lot of money, you've got no claim.

So it's completely buyer beware, really. And the PI and cover is not really going to protect you unless it's an absolute dire situation.

Absolutely. So it's, we're not talking, it has to be highly factual, non-emotional type of claim to get through. And unfortunately, a lot of them are emotional. And where we're seeing claims, if we do see them, is through self-managed super funds. And, you know, there's no advice from a financial planner.

There is no advice from an accountant. And then you've got a property professional that's trying to be an advocate for all of it. And it's not their expertise. That's where they would fail.

Yeah, because obviously it's a trust structure, it's a tax structure, right? And so they're recommending to do a property through a certain tax structure. So do this in your super fund. So then that's become tax advice. And then if they market that, like, hey, come to us to do it.

They're almost like they got the idea because of their marketing. And then that's the reason why they're doing it. So they realize their marketing failed, plus they went to this dangerous structure. But even they do that anyway, they will go like, Oh, you've got X capacity. Oh, you're tapped out.

Oh, have you thought about buying in your self-earned super fund? So like, is that where you've got to be, you know, they've got to be really careful.

They've got to be really careful. And if they ask that question, the next question should be, do you have a financial planner that will guide you through it? Do you have an accountant that has taken into consideration your overall position?

If you don't ask these two questions afterwards, well, then you're exposed as a professional because you can't give tax advice. So, and to a consumer, the message is, don't just rely on the property professional.

If you are buying in that structure, there's others that can back it up and it's probably the best option for you, but have it in black and white. Have an advice that you can then send to the property advisor and go, okay, this is my full advice.

And I now need you to help me to find the vehicle to fulfill that.

Yeah, the other one that's really dangerous was the trust lending that sort of exploded last two years. And there's a lot of content out there around limited borrowing capacity, and you can just leverage as much as you want. And then they would come in. Well, how do I do that?

Oh, you need to trust. Oh, you don't know how to do that. Oh, here's an accountant. It's actually one of our relationships. And then bang, that accountant's in on it because then they get fees.

And so they have referred them to an account, but then it's their in-house accountant who's conflicted because if they say no, they're going to lose not just that customer, they're going to lose potentially hundreds of customers. And so they've almost have to just follow the process.

And so that I think also exposes them a lot because A trust is just as dangerous as a self-funding super fund too. It's still recommending a tax structure, right?

Yeah, absolutely. But in that scenario that you've just described, Chris, if a consumer suffers, they've got an availability to pursue that accountant and the property. So there's a few professionals that would be vicariously liable altogether. So all of a sudden it can be a really big claim from few different sources.

And then the insurers decide who is the one that actually has given misleading and incorrect advice. And that's where the claim gets paid. It doesn't necessarily mean that all of those insurers end up paying the client. They're just looking for the one that's, okay, well, that was your problem.

And because of it, it was like a domino effect. Everyone got affected. But at least there's an availability to a consumer to have more protection.

And it sounds like in that situation, the accountant would be done, right? Because the accountant would have been not, they would have recommended the structure, the tax structure, which is the trust.

The broker would have just been a facilitator of that because they would have just, the accountant said you should do a trust. Okay, cool. All right, well, I'll just do that. So yeah, the accountants, they're taking all the risk.

And you saw that as well because the accounts are signing off letters for banks. And I think that's a huge issue that I think the accounting industry sort of figured out as well. Thank you.

Interesting you mentioned that because we insure quite a lot of accountants and a lot of them now saying, I don't deal with these certain scenarios. I don't deal with self-managed super funds or I don't deal with setting up these structures. You know, they have to go to someone else.

And when they apply for insurance, they're very specific. I do not do this. So, and it's because of situations like you've described, we have seen that happening a bit in the last few years, which is unfortunate, but it happens. And that's why, you know, professionals need insurance.

To take us out, have you got a property Dumbo for us, Paulina?

It's just a story to lighten it up at the end of the episode, just like a property sort of dumbo. It's a story we can learn off something a bit humorous.

We manage insurance for property investors a lot, a huge amount of property investors all around Australia. And we had a client that rang up and said, oh, a tenant hung themselves and I want to lodge a claim. I said, wow, that's sad. Is the person alive? They're like, what do you care?

My ceiling collapsed. And I said, well, that's very sad, but is the person okay? So I kept going back to the person. And of course, they were covered for the damage to the ceiling. but we had to describe that claim. There was a lot of reports that had to be submitted.

So at the end of the day, it's very important for anyone purchasing properties, whether it's investment or home, to have those properties insured because you just never know what's gonna happen. So that's probably the saddest and a bit strangest kind of claim I've had to manage in the last 20 years.

You just never know what's going to happen inside your property. And you're buying it. You're investing money in it. You want it to grow. And by the way, this is very much outside of the advice that a property professional would give you.

So have your insurance for yourself as well for the property you're purchasing.

Thanks so much, Paulina.

I really enjoyed chatting to you and I think it's a good topic we haven't covered and I think something people are going to, I feel like we'll be claiming on a bit over the coming years or trying to claim on, but I don't think they've got a good much chance to be honest is my takeaway.

I think they've got to be really careful whenever you're buying property, even if they've got insurance, don't assume that that's going to protect you.

Yeah, I think that's a takeaway message, isn't it? Thank you so much, Polina. You're very welcome. Thank you.

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