OPINION: Why PI premiums don’t match risk

FOR decades, professional indemnity (PI) insurance for customs brokers has been priced on a simple and largely unquestioned metric: revenue generated from professional services, historically the customs entry. That approach once made sense. It no longer does.

A customs broker’s professional fee was historically directly linked to the customs value of the goods. Entry fees were often calculated as a percentage of value, meaning that revenue acted as a reasonable proxy for risk. Higher-value consignments generated higher fees, and therefore higher PI premiums, broadly aligning exposure with pricing.

That world is gone.

The Structural Shift Underwriters Have Failed to Catch

Customs clearance fees today are overwhelmingly transactional. A customs entry is charged as a flat fee, frequently bearing no relationship whatsoever to the customs value of the goods being declared.

A broker may clear:

• A $2,000 shipment, or
• A $20 million shipment… for the same professional fee.

Yet under current PI underwriting models, both are treated as presenting equivalent exposure because the premium is still driven primarily by revenue, not by fiscal or regulatory risk. This disconnect is no longer theoretical. It is systemic.

The Real Exposure Always Has Been Customs Value

A recurring issue has been acknowledged across multiple underwriters: customs value is not meaningfully considered in PI premium calculations, despite being the primary determinant of:

• Duty and GST shortfall exposure
• ABF infringement notice penalty scales
• Statutory liability quantum
• Downstream recovery actions by insurers

In other words, the figure that determines how large the loss can be is largely ignored, while the figure that determines how cheaply the service was sold drives the premium. That is backwards.

Why Revenue-Based Premiums Now Distort the Market

This outdated methodology has produced an unintended and damaging consequence: risk cross-subsidisation.

Under the current model:

• Brokers who invest heavily in training, internal auditing, layered quality control, and conservative compliance practices often charge higher fees.
• Those higher fees increase declared revenue.
• Higher revenue attracts higher PI premiums, regardless of actual risk reduction.

Meanwhile:

• Low-cost providers operating on thin margins
• With minimal QC, limited training, and heavy reliance on unchecked automation
• Declare lower revenue and therefore attract lower PI premiums.

The result is perverse. The safest operators subsidise the riskiest ones. This is not a compliance issue. It is a pricing failure.

Why This Matters More Than Ever

Regulatory enforcement environments globally are tightening, not relaxing. Strict liability regimes mean that:

• Intent is irrelevant
• Errors are penalised
• Exposure scales with value, not effort

An incorrect declaration on a high-value consignment presents a materially different risk profile to the same error on a low-value consignment. Yet current PI models treat them as commercially equivalent because the broker’s fee is the same. That is not how risk works.

Customs value is the only metric that reflects true exposure.

If PI insurance is genuinely intended to price professional risk, then customs value must be a core underwriting input. Basing premiums at least in part on the aggregate customs value processed by a broker would:

• Align premiums with actual fiscal exposure
• Reflect the true magnitude of regulatory risk
• Remove the artificial advantage enjoyed by low-cost, low-control providers
• Reward rather than penalise investment in systems, training, and governance

This approach is already understood conceptually within the industry. Revenue is a poor surrogate for risk in a transactional pricing environment.

A Global Issue

This is not a problem for Australia alone. The same structural flaw exists in PI underwriting models across multiple jurisdictions where customs brokerage fees have flattened while regulatory exposure has grown.

Underwriters globally need to recognise that the profession has evolved, but the insurance models have not.

The Path Forward

No one is suggesting abandoning revenue entirely. But continuing to treat it as the primary determinant of professional risk is no longer defensible.

A modern PI framework for customs brokers should:

• Incorporate customs value bands as a core exposure metric
• Differentiate between brokers handling materially different fiscal risks
• Stop penalising compliance-focused operators for charging sustainable fees
• Reflect what actually goes wrong when things go wrong

Until that happens, the industry will continue to see:

• A race to the bottom on price
• A dilution of professional standards
• And a growing gap between real risk and insured risk

That is not good for brokers, insurers, or regulators. Most importantly, it is not good for the integrity of the supply chain.