Following on from the analysis last week of a hypothetical proposal facing a broker Waltham Pitglow comments on some reader suggestions
This week we will catch up on some of the exercises set over the past few weeks.All hot topics and a particular commendation to the Opus corporate risk broking team who, on the question relating to an insurer's right to cancel, submitted a response worthy of any expert report.The nub of the question was whether an insurer, under a policy with a 30-day cancellation clause, could cherry pick just one property from a portfolio and withdraw cover at no notice, or notice less than 30 days.The general consensus was that while the policy generally referred to cancellation of the whole contract, mid-term cancellation of cover (with the appropriate notice) for just part of the risk was generally accepted as market practice, on the basis that the insurer could cancel the whole cover if it wanted.However, the Opus team introduced an interesting and important point. If, for example, the property excluded was a poor unoccupied risk, the client's best interests would be served by absorbing that property into an attractive portfolio rather than placing it in isolation. The broker should be aware of the customer's legal rights under the contract of insurance so that the best option for the client can be negotiated.
Customer rightsThe underlying learning point was that a broker should know the rights of a customer under a policy of insurance as well as the obligations and readers would do well to remember to read the policy document before accepting anything from an insurer which is not to the customer's advantage. (Indeed a broker would do well to read every policy in any event.)John Rusby from Reading compared the situation to that of a broker dealing with a claim for a client and accepting an avoidance for non-disclosure or a reduction in the claim for one reason or another.He is of course quite right. We see many brokers who just fold and accept avoidance by an insurer. The embarrassment comes perhaps much later after the client has sued the insurer and won.In case you have any doubts about how ridiculous reasons for avoidance can be, we actually worked on a case where the broker and client notified a serious loss for a previous company of the directors under the declaration of the proposal ("are there any other matters you wish to disclose") rather than the question asking for claims/loss experience.The policy was avoided for misrepresentation with a claim that the broker deliberately put the details in other than the question on claims to mislead the underwriter. Indeed, we heard a story that at least one insurer is sending claims to lawyers before they go to the claims department to establish whether there are grounds for avoidance before considering the claim.So let us broaden the learning point to include claims as well. Before you accept what the insurer tells you (or offers your client), check that your acceptance of the situation is in the best interests of a client and that means checking the policy wording and being reasonably sure that the insurer is acting correctly.
Broker parishesThe second unresolved exercise is the question of broker parishes. Let us define a broker parish as brokers that can be grouped by some unique market practice.For example, Lloyds brokers work in a different fashion to non-Lloyds brokers. Clearly the majority of market practice is the same but, where differences exist, they should be identified as they are an integral part of measuring on the job competence. It may also be the case that regulation impinges on a particular area of market practice, although I have to say that the FSA has done a rather splendid job on market consultation. Whether market practice will have to change (most likely) or the regulator may make allowances (less likely unless the practice is clearly beneficial to the customer) is something that must be addressed.The key aspect of the exercise is to define the body of opinion of what market practice should be and to identify the bodies/parishes. Not only does the body of opinion allow one to respond to an accusation of failure, but it also sets a benchmark to be met and which can be changed if inadequate.For example: GISC rules state that a broker may take into account the insurance knowledge of a client when deciding what needs to be explained.Lloyds brokers are commonly dealing with insurance professionals and people experienced in insurance matters, so it is not common practice to go into every detail about a policy in this parish. Retail customer brokers dealing with private individuals have to be far more careful to ensure that the customer understands a policy.The body of opinion in each of these parishes supports a different market practice, although readers must be alert to the fact that if the Lloyds broker assumes a level of knowledge that does not exist and something goes wrong he could still be liable. Ultimately regulation and the law prevail over market practice.The most important learning point about the subject of broker parishes at present is that the FSA is a non-prescriptive regulator. It means that brokers will have to develop good market practice and standards to work within the regulation and the best way of doing this is in numbers.If you are not a member of a trade body or an institute or just a group representing your interests (either corporately or personally) then you should be. It is good risk management apart from anything else. You will find out far more about up-to-date thinking on good market practice from a good representative body than any other source.And if you are a member of a parish that is not well represented you may well consider that it is time to form a representative group.
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.
Ideas for broker parishes