What Is Investment Manager Indemnity Insurance in Australia?

Investment manager indemnity insurance in Australia is specialist cover for fund managers, responsible entities (REs) and investment advisers. Depending on the wording, it may combine Professional Indemnity (PI), Directors and Officers (D&O) liability, regulatory investigation, crime and Employment Practices Liability (EPL) cover, subject to the insured entities, services and limits.

Also called investment management insurance or IMI, it's built around the overlapping risks of a fund business: professional claims, governance exposure, regulator inquiries and financial crime. A coordinated wording may close gaps when one matter involves several claims. But each section still has its own trigger, insured parties, limits and exclusions.

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At a glance

• IMI may combine PI, D&O, regulatory, crime and EPL sections
• May suit fund managers, REs, trustees and investment advisers
• PI may respond to claims from defined fund or advisory services
• D&O may respond to wrongful-act claims against insured people
• Crime may address defined direct loss from dishonesty or fraud
• Regulatory costs may be included, subject to the policy trigger
• Cyber isn't always part of IMI
• Poor fund results alone don't generally trigger cover
• Notification timing and retroactive dates affect claims-made cover

How does Investment Manager Indemnity insurance work?

IMI is structured as a policy with several insuring sections. Each one addresses a different type of claim.

Professional indemnity

The PI section may respond where a party alleges that an error, omission or breach in providing defined fund services caused a loss. Claims may involve:

• Failure to follow a mandate
• An unsuitable recommendation
• Inaccurate reporting or net asset value (NAV) errors
• Undisclosed conflicts
• Breach of duty while managing funds

Cover may include approved defence costs and covered payouts.

Directors and officers

The D&O section may respond to claims that a director or officer committed a wrongful act while running the business or fund. Claims may concern:

• Breach of duties
• Weak governance or oversight
• Misleading disclosure approved by the board
• Failure to manage conflicts

Entity cover depends on the wording.

Regulatory inquiries

This section may cover approved legal costs from an insured inquiry by ASIC or APRA. Check which people are insured and when the trigger starts.

Crime and fraud

Crime cover may respond to defined direct loss suffered by the manager or fund from dishonest or fraudulent conduct. This may include employee theft, forgery, fraudulent transfers or external fraud.

Crime and cyber aren't the same. A fraudulent payment may fall under crime, cyber or neither.

Employment practices

EPL may respond to claims of dismissal or harassment. Cyber and prospectus cover may be added separately.

Who may need Investment Manager Indemnity insurance?

A boutique manager with one fund is a different risk from an RE running five retail schemes. Cover should match the actual entities, investors and strategies.

For a deeper look, see what insurance do investment managers need.

Is Investment Manager Indemnity legally required in Australia?

IMI as a full package isn't required under any single rule. But parts of it may be. Under section 912B of the Corporations Act, AFS licensees serving retail clients must have arrangements to compensate those clients for eligible losses. ASIC RG 126 names PI as the main way most licensees comply.

ASIC's expectations for adequate PI include:

• The licensee's fee revenue from retail clients
• The nature, scale and complexity of the business
• Fraud and dishonesty protection
• Australian Financial Complaints Authority (AFCA) awards and reportable situations
• Defence-cost treatment
• Appropriate retroactive cover
• Whether the cover stays adequate as the business grows

These rules relate to the licensee's PI and cover setup. They shouldn't be treated as automatic limits for the full IMI program. The AFSL itself may impose further conditions. Contracts with REs, trustees, custodians or investors may also set cover requirements.

Wholesale-only managers may sit outside the retail rules but still face civil liability and contractual duties.

What may Investment Manager Indemnity insurance cover?

The five sections above set the scope. Several practical details cut across the whole policy and shape how much protection the business gets.

Defence costs: inside or outside the limit? Some policies pay defence costs on top of the limit. Others pay them from inside it. If costs sit inside a $5 million limit and a long case racks up $2 million in legal fees, only $3 million remains for the settlement. ASIC favors costs over the limit for retail-facing licensees.

Personal cover for directors and officers. The D&O section may protect insured people from personal defence costs and, where covered, damages for insured wrongful acts.

Covered settlements or damages. Where a claim is covered, the policy may pay the agreed settlement or court award, subject to the limit and excess.

Fund-level cover. Crime and PI may protect the fund itself, not just the manager entity. Check whether each fund is a named insured.

Prospectus and capital-raising cover. Where the manager or RE raises capital, this may respond to claims from the offer. It may be included, sub-limited or arranged separately.

Statutory cover. Fines and penalties where legally insurable and where the policy expressly includes them. Not every fine is insurable under Australian law.

Shared versus separate limits

Some policies share one limit across all sections. Others provide separate D&O or crime capacity. The structure should consider expected claim severity, the number of funds and entities, directors' personal exposure and regulator sub-limits.

Market loss versus insured wrongdoing

A fund falling in value doesn't by itself create an insured claim. The claim generally needs to concern negligence, breach of duty, misleading disclosure, failure to follow a mandate or another insured wrongful act.

For example, a fund may lose 25% in a broad downturn without triggering the policy. If investors instead allege the manager exceeded the mandate's risk limits, failed to disclose conflicts or issued misleading data, the PI section may need to assess those claims.

Result versus conduct. That's the line.

What does Investment Manager Indemnity insurance commonly not cover?

Exact exclusions differ between insurers. Common restrictions include:

Known circumstances

Claims, complaints or inquiries known before the policy period and not properly disclosed.

Market performance

Market losses or failure to achieve a target return without an alleged insured wrongful act.

Deliberate conduct

Fraudulent, dishonest or deliberate conduct by the insured entity, subject to the conduct exclusion and severability terms. Crime cover for employee dishonesty is separate from cover for the dishonest person.

Undeclared work or entities

Services outside the declared business. Funds or schemes not on the policy. Unlisted trustees, REs or related companies.

Cyber incidents

Data breaches, ransomware or privacy events where appropriate cyber cover isn't included.

Pre-notification costs

Legal costs incurred without the insurer consent required under the wording.

Uninsurable penalties

Fines or penalties that can't legally be insured.

Insolvency-related claims

Some policies restrict claims connected with the insolvency of the fund or manager. If the policy doesn't respond, unitholders may have no recourse under the cover.

Valuation restrictions

Some policies restrict valuation, development or asset-pricing exposures. Property and illiquid-asset managers should confirm their work falls within the defined services.

Common Investment Manager Indemnity insurance claim scenarios

These examples don't guarantee cover.

Incorrect NAV. A fund manager calculates an incorrect net asset value, causing investors to buy units at an inflated price. After the error is corrected, investors allege negligence. The PI section may assess approved defence costs and any covered settlement.

Misleading PDS. Investors allege that an RE and its directors approved misleading statements in a PDS. PI and D&O may both need to assess the claims, depending on who is sued.

ASIC inquiry. ASIC issues notices relating to the manager's disclosure processes. The inquiry section may respond to approved legal costs where the inquiry meets the policy trigger.

Employee diverts fund money. A finance employee creates false payment records and transfers money to a personal account. Crime cover may respond to the defined direct loss, subject to the policy rules.

For more on how the sections interact, see IMI: PI, D&O and cyber explained.

What affects Investment Manager Indemnity insurance cost?

There's no standard premium. Every fund structure is different.

FUM and fee revenue. These are the two biggest inputs. Higher FUM means higher potential claim exposure, and fee revenue drives the RG 126 limit calculation for retail-facing licensees. A manager with $50 million in FUM pays very differently from one with $500 million.

Investor profile. Retail investors create regulatory and compensation obligations that wholesale-only managers don't face. Institutional mandates may bring their own contractual requirements.

Strategies and asset classes. A long-only equity fund is a simpler underwriting risk than a leveraged property development fund. Alternative assets, illiquid holdings and overseas exposure may attract closer review.

Policy structure. Shared limits (one limit across PI, D&O and crime) are cheaper but riskier. Separate D&O capacity protects directors if a large PI claim uses the main limit. The sections selected, limits, excesses and defence-cost treatment all affect the price.

Claims and compliance history. Prior claims, regulatory actions and complaint records are weighed. Strong compliance frameworks and audit arrangements may support the underwriting, though they don't guarantee lower premiums.

Cyber alongside. Cyber is usually priced and arranged separately. Whether it's bundled or standalone adds to the overall program cost.

How to arrange Investment Manager Indemnity insurance

The insurer needs a clear picture of the business, its funds and its governance before quoting. Expect to provide:

Licence and structure. AFSL number, authorised services, licence conditions, entity structure (RE, manager, CAR, trustee), and whether the business serves retail or wholesale clients.

Fund details. FUM by fund, fee revenue, strategies and asset classes, leverage, PDSs, mandates and investment agreements. Each fund may need to be listed on the schedule.

People and governance. Directors, officers, committee members, authorised representatives, compliance and audit framework.

History and controls. Claims and circumstances history, complaints, AFCA matters, reportable situations, ASIC correspondence, crime and payment controls, custody and outsourced-provider details.

Current cover. Existing PI, D&O, crime and cyber policies, requested limits, excesses and retroactive dates, and whether D&O needs its own tower or shared limit.

Questions to ask before accepting a quote

Are the right entities and people insured? Check that the manager, funds, trustee and RE are all named. Confirm directors, officers and committee members are included. A missing entity or person means no cover for claims against them.

Which services are defined? The PI section only responds to claims within the defined fund or advisory services. If the wording is too narrow, a legitimate claim may fall outside cover.

When does regulatory cover begin? Some policies only respond once a formal investigation starts. Others respond earlier, when the regulator requests information. The trigger matters because early-stage legal costs can be significant.

Does crime cover the fund, the manager or both? A fraud loss may hit the fund's assets, the manager's accounts or both. If only one entity is insured under the crime section, the other bears the loss.

Are defence costs inside the limit or in addition to it? If inside, legal fees reduce what's left for a settlement. If in addition, the full limit remains for damages.

How are related claims aggregated? Insurers may treat multiple claims from one issue as a single claim with one limit and one excess. This can reduce the total cover available for a widespread problem.

Which exclusions apply? Check insolvency, valuation, performance, digital-asset and territorial exclusions. These are where gaps tend to appear, especially for property, private-market and overseas fund managers.

How upcover can help

Investment Manager Indemnity insurance is more than PI for a fund manager. Its value depends on whether the actual entities, directors, services and investor profile are properly matched to the wording. Cyber and other specialist exposures should be reviewed rather than assumed.

upcover arranges investment manager indemnity insurance for eligible Australian businesses. Options can be compared using consistent FUM, fund structures, entities, services and limits so material wording differences are easier to spot.

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upcover Pty Ltd ABN 17 628 197 437 is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078.

Frequently asked questions

What is investment manager indemnity insurance?

Specialist cover for fund managers, REs and advisers. It may combine PI, D&O, regulator, crime and EPL sections into one policy.

Is Investment Manager Indemnity insurance mandatory?

IMI as a full package isn't universally required. AFS licensees serving retail clients generally need adequate PI and cover arrangements under s912B of the Corporations Act.

Does Investment Manager Indemnity insurance cover poor fund performance?

Not by itself. A claim generally needs to allege an insured error, breach or wrongful act. Market decline alone isn't generally the trigger.

Does Investment Manager Indemnity insurance include professional indemnity?

PI is commonly a core section. It may respond to claims alleging errors, omissions or breaches in providing defined fund or advisory services.

Does Investment Manager Indemnity insurance include D&O insurance?

It commonly does. D&O may cover insured directors and officers facing wrongful-act claims. Check the insured persons, entities and capacities.

Does Investment Manager Indemnity insurance include cyber insurance?

Not always. Cyber may be included by extension but is often arranged separately to cover data breaches, privacy claims and system interruption.

Does Investment Manager Indemnity insurance cover ASIC investigations?

It may where the regulatory section is included and the inquiry meets the policy trigger. The stage, insured person, sub-limit and wording all matter.

What information is needed for an Investment Manager Indemnity insurance quote?

Typically: AFSL details, FUM, fee revenue, fund structures, strategies, investor types, directors, compliance controls, claims history, outsourcing details and requested limits.

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_{The information in this article has been prepared without taking into account your individual needs, objectives or financial situation. It should not be relied upon as personal advice. All insurance products arranged through upcover are subject to the terms, conditions, limits and exclusions contained in the relevant policy wording and Product Disclosure Statement. Before deciding whether a particular insurance product is right for you, please read the relevant PDS and consider your personal circumstances. upcover Pty Ltd ABN 17 628 197 437 is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078. upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.}