Tony Howe, managing director of The Collegiate Group looks at the issue of intermediaries' responsibility to make sure clients understand their policies and the problems that can arise when this does not happen....

How many intermediaries even now, when sending the policy to the client, ask the client to read the policy carefully and check that it complies with his requirements.

There is certainly nothing wrong in doing that, indeed it is quite advisable but does it exonerate the intermediary if he has not met the client's requirements in the first place? In all likelihood the client has not read the policy and even if he has, he may not necessarily understand it or then be in a position to replace the insurance he has bought with one that would have given him the cover he was looking for. When the claim arises and the insurer explains that there is no cover, it is enough to say "well I sent you the policy, asked you to check it and as far as I was concerned everything was in order".

An example of the problem was demonstrated recently regarding a Motor Trader Insurance. There is perhaps an increasing tendency to regard purveyors of motor insurance as not bringing any particular skill or expertise to their task. The move to forms of internet trading, where the intermediary is merely an electronic post box, perhaps typifies the lack of respect given to the value attributed to the intermediary's intervention. Indeed, it raises a very interesting question as to whether merely providing a quotation vehicle for one's client exonerates one from the responsibility of having any advisory input into the product selected.

In fact, motor business is in many ways as complicated as any other and does require considerable skill and expertise in getting it right. The case was one where a motor trade client asked for insurance. Insurance was duly provided and a copy of the policy sent, with the request that the document be read carefully to make sure that all details were in order and complied with the client's requirements. There was some reference in the letter to the sections relating to voluntary and compulsory excesses, which were highlighted as being the most important.

Contained within the policy was an exclusion relating to a vehicle while in or on the business premises, or on a road at or in the vicinity of the business premises. The reason for the exclusion was that the forecourt was not owned by the motor trader but was operating from shared premises. The trader had rented a forecourt on a garage owned by a third party.

A vehicle was stolen, the insurers declined to pay and the client, through his lawyers, was threatening proceedings for the unrecovered loss. It was said by the lawyer acting for the client that the policy did not meet the client's requirements, since at the time the insurance was arranged it was their client's intention to take cover both for fire and theft of the vehicles. The intermediary felt that he had not been instructed to arrange a Motor Trade Combined Policy and that, in any event, no insurer would have taken the risk of vehicles on a forecourt that were not in the ownership of the insured. As evidence of the latter point, a further quotation was obtained with a similar exclusion.

On the other hand, lawyers for the client were able to produce a quotation from another reputable supplier, showing that cover could have been supplied provided the vehicles were clamped, albeit that the premium would have been somewhat higher.

While it seems that the claim itself is grossly inflated, in that cover would only be given on an indemnity basis for the actual value of the vehicle, it is felt that the claim is one for settlement. The intermediary will not be able to rely on the failure of the client to spot that what he had bought was not what he asked for, as a defence to the claim. If an intermediary is to have value in the insurance buying process, he must bring knowledge and skill and an independent view to the risk. He should be able to ascertain his clients' needs. He should be able to meet those needs or at least to tell the client the extent to which he is unable to do so and to ask the client whether he is happy with what he is provided, on the assumption that what was asked for was not capable of being provided.

Unless we move to standardised policies, with equivalent wording and equivalent warranties and exclusions, then removing an intermediary from that process or turning him into a post box is only likely to increase customer dissatisfaction and the bills for redress.