Allianz Cornhill UK chief executive Andrew Torrance was recently reported in your paper that his company would not accept responsibility for premiums paid to a broker who subsequently went into liquidation (10 April, Insurance Times).

He is not alone, as other insurers have made similar statements. I think policyholders and brokers have a right now to know how he proposes to implement this suggestion as it will radically impact on how insurance is transacted in the UK.

It is enshrined in common law that for certain activities brokers act as agents of the insurer. There are numerous cases which act as precedents. The major areas are going on cover and premium collection. Insurers have always been creditors for unpaid premiums when a broker goes into liquidation and when an insurer goes bust, the liquidator always insists that premiums collected by brokers are the insurers, and brokers are creditors for the commission, as in the recent Independent deal. The terms agency and commission imply that the insurers are principals and brokers are their agents. Insurers have always insisted that they own the client not the broker. Torrance proposes to change common law without a statute and fundamentally alter the relationship with customers.

I presume he is prepared to acknowledge that the broker owns the customer not the insurer. This would be a bold move and give up a valuable asset especially when a broker gets into difficulty.

To implement the suggestion, a broker would have to cancel cover with all clients immediately where the premium has not been paid to it or set aside in a trust account. If due, returned premiums would be paid to the liquidator and the policyholder would be a creditor for the unexpired risk and have to take out separate cover immediately.

Perhaps Torrance is suggesting that cover is cancelled ab initio so the whole premium is wiped off. This means any unpaid claims would not be covered, leaving policyholders exposed to these losses as well. He might be thinking of abolishing commission totally and insisting Allianz confirms cover and changes with clients direct so there is no question of an agency relationship.

I assume before he made the statement that he had taken legal advice as to how it will be implemented. Perhaps he could share with us how he proposes to fundamentally alter the way insurance has always been distributed.

Tony Cornell,
Cornell Consulting