Risk management and superannuation trustees go hand in hand. Currently, superannuation trustees need to be aware of two areas: managing outsourced processes and functions, and professional indemnity insurance. In the current economic climate, outsourcing arrangements are subject to increasing scrutiny, both from the perspective of customers wanting to ensure they are receiving best value and level of performance, as well as suppliers looking for ways to increase revenue or margins. Professional indemnity insurance is a particularly timely issue because ASIC’s increased requirements under Regulatory Guide 126 apply from 1 January 2010.
To ensure that trustees are prepared, a seminar titled ‘The business of being a trustee: managing your risk’ was held at Freehills’ Melbourne office on 7 May. Partners, Selina Lightfoot and Natalie Gullifer spoke at the event. Selina Lightfoot is a corporate commercial lawyer with a particular focus on outsourcing and commercial contracts, including outsourcing in the financial services sector. Natalie Gullifer has extensive experience advising trustees on the negotiation and interpretation of professional indemnity insurance policies, including RG 126 compliance and coordination with trust deed indemnities.
‘The key to our seminar was to stress the need to address problems before they arise,’ Ms Gullifer said. ‘It is important for trustees to be proactive. Trustees have seven to eight months notice to get their professional liability insurance in order. My message is “Are you doing enough?” You don’t want to be exposing yourself to liability. Trustees may be worrying about the global financial crisis, but they still have to keep up with their insurance housekeeping. It is so easy not to be appropriately covered. Many people have false comfort with their existing insurance policies.’
The seminar stressed the need to review the coverage of professional indemnity insurance policies in great detail. ‘ASIC’s requirements are prescriptive and people need to look carefully at their policies,’ Ms Gullifer continued.
As part of the risk management theme, Selina Lightfoot spoke on outsourcing contracts. ‘A trustee’s exposure to liability is an important issue, an issue which is highly relevant when outsourcing,’ said Ms Lightfoot. ‘In order to adequately manage performance of one’s external provider and to reduce risk, planning at the outset and a focus on key contract terms such as liability, remedies for non performance and rights on exit, are essential. Particularly with regard to liability provisions, it is important for trustees to negotiate the best position they can to reduce the extent of losses they will have to cover themselves.’
A final word of advice came from Natalie Gullifer. ‘It is quite common for insurance brokers to say that policies comply with the ASIC Regulatory Guide, but trustees need to look deeper. They need to examine any underlying shortcomings which may be there, particularly concerning exclusions. This is why a legal analysis is necessary. If a large claim is made and the policy is found to be inadequate, it could be a big public relations or financial disaster for the trustee. Care and prudence are always necessary.’
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