Professional industry organisations are often keen to give brokers guidance on market practice. But brokers must beware. Petrina Oxshott explains
One thing that always fascinates me is how trade associations and institutes can be so devoted to giving members and the industry generally guidance on what is good market practice.Whether we go back to 1989 and the ABI Code of Practice or some of the latest comments attributed to Dr Sandy Scott about the CII becoming some sort of standard-setter for the whole of the industry, the prospect for the average and reasonably competent broker is frightening.Of course, the CII has broken all traditions by forming a joint venture with the broking fraternity to produce online assessment system BrokerAssess (and is it not time that the major insurers put aside their differences and bought into the concept of an industry-wide system?). But there remains something of an absence of evidence that any representative body, other than the major broking trade associations, really understands broking market practice.Let us consider for a moment that FSA regulation of general insurance is of a non-prescriptive nature. What this means is that on the whole, the FSA will tell us what outcomes they want, but not how to get there.In a legal context, when a broker is alleged to be negligent, evidence will be adduced as to whether that broking firm is compliant or otherwise.Take a simple example of the issue of a 'demands and needs' statement. This will be a regulatory requirement in certain circumstances and in a dispute the first question will be whether the broker met this requirement of issuing the statement. If the answer is in the negative, then the broker is non-compliant with FSA requirements (underlying market practice defined by a statutory body) and evidentially on the back foot (although ultimately the courts will decide the case on the facts).However, the other aspect of market practice is the standard of advice given and competence displayed by the broker within the FSA framework, something the FSA does not stipulate.Although the courts will still make a decision on the facts, evidence of market practice can be quite persuasive.For example, a broker is accused of negligence by virtue of the fact that a customer is under-insured for buildings insurance. It is alleged that the broker did not explain average and did not tell the insured what the sum insured should be.The question is, should a broker explain average and should a broker advise on building sums insured and what is the authority for your answer?I will not go into reasons why as that is the subject of a different article and a different learning point altogether, but the authority we are looking for is something that represents the body of opinion of peer practitioners as to what the majority of brokers in that situation would have done.
Broking standardsThe best evidence of this is plainly to consider guidance from an organisation that represents the peer practioners and is able to gauge the opinion. Organisations such as Biba and the IIB come to mind and of course GISC and the IBRC in a regulatory context. You can perhaps understand my reservations about the CII promoting itself as a champion of broking standards.So what did you think was the answer to the question on under-insurance? Whether or not the majority of brokers do so, all codes of practice dictate that they must explain onerous terms or conditions (or reasonably ensure that customers know about and understand them). Average, I would suggest, must fall into that category. Advice from both the IIB and Biba has been to make a record of having given such advice.Similar guidance (also enshrined in the ABI code) is that brokers should not influence a customer in what to put on a proposal and this would extend to advising on the levels of sums insured, unless the broker holds him/herself out as a specialist in that area. This means that if you offer to assist to help with deciding on sums insured so be it. But without such an offer a broker is not an expert on such matters, although would be expected to advise how a sum insured should be calculated within the policy terms - business interruption is a good example.For many years there was an almost lemming-like desire by those purporting to be experts on broker market practice to suggest that all brokers should follow the same market practice and, in particular, if the largest brokers acted in a certain manner so should the rest of the market.To show how much things have changed in the broking fraternity, one of the great successes of the current Biba chairman's tenure is the acceptance by the market and regulators that there are many strata of good market practice. And the fact that Hamish Ritchie is also chairman of Marsh shows just how far we have moved in respecting the marvellous diversity of the broking profession.But there is a downside to representative organisations giving guidance on market practice, not least of which is the fact that once issued, it will be referred to as evidence of good practice in the event of a dispute. A good example of how things can go terribly wrong is in the ABI Code of Conduct. In this someone approved the requirement that an intermediary "must explain the statements in a proposal about the duty of disclosure himself", giving every claimant with a policy avoided for non-disclosure legitimate excuse to sue the intermediary for negligence where the duty was not explained in person.The big learning point is that those that represent a body of opinion within the broking market should be desperately careful about giving guidance, until they do know that what they are suggesting is good practice, is supported by the majority of those affected and also fits within the demands of modern regulation.To my mind, it is an absolute credit to key figures such as Biba chief executive Eric Galbraith and IIB director general Andrew Paddick that they have not been jumping all over brokers telling them how things should be done.
Poorly writtenIf any readers see a representative body pontificating on market practice that they do not agree with then for goodness sake, make a challenge. If you allow yourself to be bullied into accepting what a poorly written text book tells you about how you should behave then you only have yourself to blame when someone wants to criticise you for acting differently and relies on that text book to discredit your actions.I leave you with a riddle: XYZ client insures a vacant factory with ABC insurer. It has been insured for two years and mid-term ABC advises the broker that it no longer insures vacant property and is coming off risk in seven days. On the basis of market practice, what should the broker do? There are 20 other properties on the schedule and a 30-day cancellation clause.
Using this CPD pageFor the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated. If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body. Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated. For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant. Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website.To download a PDF of this article as it appears in the magazine click here .