Insurers are not bound to offer renewal terms at the expiry of an insurance contract. But should the intermediary expect the client to be conscious of his own renewal date and to issue further instructions to the intermediary as the renewal date approaches?

Or, is it the duty of the intermediary to concern himself with renewal dates and be open to criticism if his client's attention is not drawn to the renewal date in time to incept cover?

Normally this issue is taken care of by the intermediary because he has no wish to lose the client. He keeps a record of renewal dates as a way of maximising his income. If the intermediary fails to do so, and for some reason or other fails to consider the matter, does he then run into difficulty?

In a recent case, an intermediary placed a household policy for a private client. Renewal instructions were sent to the client but the premium was paid late. At about the same time as the premium was received, the intermediary, without telling the client, asked the insurer to go off-risk for non-payment of premium.

Had a claim arisen during the time when the policy was not taken up, the intermediary could have argued that unfortunately the client's instructions had been wrongly interpreted and the cover was in effect and the premium paid.

Since the intermediary is the agent of the insurer for the collection of the premium, it would have been difficult for the insurer to have argued the policy had been cancelled for non-payment by the client.

However, because the insurer did not realise the risk should have been placed, no subsequent renewal notice was sent out. Furthermore, the intermediary, believing that the cover had not been taken up, sent no communication to the client when the renewal date came around. The client was blissfully unaware of all these matters and did not check his renewal date. A month after the policy was cancelled he suffered a substantial theft. The client then discovered the policy he thought had been placed was not and, even if it had been, it would by now have expired.

This is obviously a case for settlement. The General Insurance Standards Council Code, and no doubt the law, will impose similar duties on the intermediary. The GISC Code states:

“We will tell you when you need to renew your policy or when it will end in time to allow you to consider and arrange any continuing cover you may need. We will explain the renewal terms (if offered)” etc.

The lessons here are obvious:

  • the broker's administration should include some form of credit control
  • there needs to be adequate liaison between the accounts department and account handlers to check that premiums have actually been paid
  • a proper diary system should be maintained
  • before removing a client from the diary system, it should be checked with them that they no longer need an intermediary's services
  • if cancelling cover, the client's instructions in writing should be obtained
  • if exercising rights of cancellation for non-payment of premium, then the client should be informed of that fact, preferably beforehand, to ensure that no mistake is being made.
  • Tony Howe, managing director The Collegiate Group of Companies

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