In Insurance Times’s April 2021 issue, Manchester Underwriting Management’s Richard Webb discusses helping brokers through the difficulties they are facing as a result of Covid-19 and business interruption claims
The insurance industry is adept at creating complex methods of dealing with risk but, as is often the case in life, if you go back to basics it’s really quite simple. Whatever product an insurer decides to underwrite they need to create a pot to pay for the claims and the costs of writing the business.
The number of brokers in the UK is not large – it is estimated that there are around 2,500 to 3,000. This alone limits how much premium can be generated by the market. Insurance brokers are almost unique in the exposures that they face. With other professions, large losses can normally be shared.
For example, let’s take a construction project with a total contract value of £10m. If the building is completed, but a problem arises, there is rarely a total building failure. Even if it has to be rebuilt, it’s extremely unlikely that the architect, contractor or engineer will be solely liable. Now, what if a broker places insurance for that £10m building and there’s a serious fire?
And what if the insurer refuses to pay, saying there’s a non-disclosure? The broker could be liable for the whole £10m and more. And the building design team and the contractor get paid £10m. What does the broker get paid?
Aside from this disaster exposure, clients can be unhappy when their insurance policy doesn’t respond as expected with smaller losses and the accusation of negligence can be quick to arise.
Claims can often be defended, but it a takes time and money, whether dealing with the courts or Financial Ombudsman Service. At Manchester Underwriting Management, we included a claims prevention helpline when we developed our broker product.
Our insureds can speak to a solicitor to talk through any issue they have with a client or insurer as long as it is insurance-related.
They will even help draft correspondence. The idea is to try to solve the problem before it becomes a claim against the broker.
Take our fire claim: legal help when the insurer first reserves their rights might mean the disclosure issue can be solved before the reservation becomes a decision not to indemnify.
We get so much positive feedback about this.
The game changer now is Covid-19.
As the first lockdown took hold, we saw the initial notifications by brokers under their professional indemnity (PI) policies as their customers found that their business interruption insurances weren’t paying out.
The notifications continued to arrive as the pandemic widened and the recent Supreme Court judgment has added to this, with the media creating unfulfilled expectations. Some insurers pulled out of the market, probably as much because of other loss experiences as because of the pandemic.
Other insurers have excluded pandemic related claims, especially for new business. We took the decision to provide our insureds not only with cover, but also with support. Again, our policyholders can speak to a solicitor for support with disappointed customers who, understandably, can be angry and emotional.
We have had many conversations directly with our broker clients about Covid-19. Most brokers with commercial customers will be having to provide advice to them on insurance matters relating to Covid-19.
It’s a difficult time as insurers tidy up their wordings on renewal to make the position clearer. The risk for brokers and their PI insurers has grown. We’re seeing claims start to progress and we expect to incur significant expense as we defend our policyholders. One thing we can be certain of: this won’t be the last article on brokers’ exposure to Covid-19 claims.