One of the perennial bugbears of being an adviser is professional indemnity (PI) insurance. Advisers must maintain adequate PI coverage and for most, it is an expense second-only to licensee services.
It’s a competitive market, but there is “more margin in it than most advisers would realise,” says Richard Silberman, who is on a mission to disrupt the PI market.
Silberman is the CEO and Founder of Numerisk, a data-driven insurance broker that is designed to connect clients with suitable and competitive insurance products and risk management strategies specific to their industry – starting with financial advisers and PI.
In the wake of the Hayne Royal Commission, it dawned on Silberman, who’s had a long career in multinational insurance broking, that there was a huge mismatch in the market. Good insurers did not understand the retail financial advice market because of a lack of insight into the industry: they did not understand the significant positive changes that the Royal Commission was bringing about. And the good advisers were paying a price for this.
He realised that the key to this mismatch was data.
“There was data, data everywhere and not a drop to drink,” he says. “We saw an opportunity to use the data to create new ways for insurers to ‘see’ exposure, ways that could result in better outcomes for advisers and the insurers that could adapt and change.”
The crucial meeting came in 2022, when Silberman encountered Angus Woods, who had established Adviser Ratings in 2014. “As I started talking to Angus, I realised that what he’d built at Adviser Ratings was effectively the ‘Trip Advisor’ for financial advice, but it was so much more by way of context.
“Angus and his team had been working for seven or eight years on collating this amazing data set covering every adviser, practice and licensee in the country, and they had built a ‘quality score’ metric with input from the University of New South Wales. It took them three years to develop it, but it was simply amazing. It incorporated quantitative and qualitative analysis, such that you could actually say there’s a score attached to quality of advice,” says Silberman.
“It doesn’t say ‘this advice is good,’ or ‘this adviser is a bad adviser,’ but what it says is that there’s a higher or lower statistical likelihood of an adverse client outcome, by virtue of the underlying data. And with this data came insight.”
This commodity was exactly what was lacking among insurers.
“Everyone knows that the Royal Commission slashed the availability and cost-effectiveness of insurance, as insurers ran for the exits. But from my perspective, in the market, there was a kind of self-fulfilling mythology among insurers. There were definitely PI insurers that got burnt in that market, when they didn’t know why,” Silberman says.
“They were writing (insuring) big institutional licensees and wondering why they were getting $20 million claims; or they were writing accounts that just weren’t a good fit. They were writing bad business, but they just didn’t know it – because no-one seemed to be able to unpack what constituted a good advice business versus a bad advice business.”
The data can.
Numerisk starts with Adviser Ratings’ Adviser Quality Score (AQS), which draws on data from across the wealth ecosystem – sources such as the Australian Securities & Investments Commission (ASIC), the Australian Bureau of Statistics (ABS), consumer credit reporting agency Equifax and others – and applies a Python code base that leverages structured data and analytics to provide risk reporting to insurers, highly customised and specific to their wants and needs.
This is the flagship product, Business Intelligence; it is an enhanced risk profile that gives insurers a better, neater and more direct relationship between risk profile and pricing. “It was a lot of painful work, but we knew what underwriters wanted, we knew what underwriters needed to understand,” says Silberman. “The financial planning space was a market they did not really understand, and because they couldn’t do real risk assessments, they’ve tended to rely on blunt market forces to price cover. We mined the data for insights to help enhance the risk profile we present to insurers, so they can price the cover more accurately.”
That is at the heart of Numerisk’s dual proposition; to secure more aggressive pricing and better PI coverage for financial services clients, and in doing so, drive more profitable portfolios for insurers.
“We’ve helped advice firms cut the quotes they get from insurers by as much as half in some instances. Part of that is a bit of disintermediation, dislodging entrenched brokers, but most of it is simply the more granular accuracy,” says Silberman. “We’ve been able to bring multiple options to clients that have usually only ever seen what was put in front of them by their broker; it was often the same insurer, year after year.”
Within two years of starting operations, Numerisk has brought more than 160 AFSL holders – drawn from self-licensed advisers, dealer groups and institutional licensees – onboard as PI clients. It now plans to extend the same capability into other areas of financial services, such as SMSFs, fund managers, family offices, corporate advisers and other professional service providers.
It’s an exciting time for the firm, Silberman says, as Numerisk builds its new flagship technology solution, which will “bring a very new approach” to the advisory space. He says general insurance (GI )has always been a ‘grey zone’ to the broader financial services industry, with a few exceptions; Numerisk believes it can solve this, and is “well-advanced” on that agenda.
“There are a lot of under-covered risks in the financial services industry and its adjacent industries, and the principle of data-driven insights enabling more aggressive pricing and better coverage pretty much suits them all,” says Silberman.