For some time now I have been writing articles on the negligence of intermediaries and how to avoid claims. Regular readers will realise how the claims fall into a pattern. Since the pattern, once revealed, repeats itself, I have decided to put the pen away for the time being but thought I would take the opportunity to use the last article to summarise.

The placement of insurance is clearly a system and it only takes part of the process to fail for problems to arise. The scope of intermediaries' errors is never fully revealed, as insurance failure normally requires a client to have an unpaid claim before a liability arises.

This double contingency no doubt disguises the amount of intermediary negligence that actually exists. Errors are discovered and rectified before they cause a problem or the error passes unnoticed with the insured sublimely unaware of the absence of his cover. Sometimes after the event it is possible to stick things back together if action is taken quickly enough.

Typically, claims arise because no cover is in place or, where it is, insurers do not pay because of some exclusion or breach of policy conditions. Occasionally, a broker with a binding authority obliges the insurer to pay, but they seek recovery because the intermediary has exceeded its authority in placing the risk. There are the dishonest individuals that any management system or internal controls should seek to limit the opportunities for dishonesty.

Of the first type of claim, where no cover is actually in place, these can be categorised into:

  • those where there has been a delay in arranging cover and a failure to renew existing cover. Here the absence of diary systems or reliance on unsupervised staff can often be the problem, as can the last-minute instruction that does not get processed because the account handler is going on holiday or the weekend approaches. A hurried telephone conversation with the underwriter leaves the intermediary under the impression that cover is in place but with the underwriter expecting further information before cover can actually be confirmed
  • problems where the scope of cover arranged does not cover the incident in question and the client argues that insurance should have been obtained that did cover the problem
  • cases where the scope of cover is adequate but the incident is not covered by virtue of some exclusion in the policy.
  • the case where underwriters have decided not to pay because of non-disclosure or mis-representation of material information at the outset. Here the intermediary is substantially ex-posed if he was aware of the non-disclosed material and allowed the proposal to be submitted without proper declaration having been made. These errors are often compounded when the intermediary fills in the proposal form without putting the onus on their client to at least sign off on all the information before the proposal is finalised
  • there are breaches of policy conditions and here the intermediary is exposed if, for instance, he fails to comply with the claims notification time limit or to point out unduly onerous conditions to his client
  • breaches of warranty again expose intermediaries to risk, where the warranty has not been properly explained to the client. Problems can arise where the insurer has become insolvent, particularly if the intermediary does not engage in any form of credit rating.

    Dealing with these problems requires a system-based approach, with properly monitored procedures in place to ensure a minimum of error.

    Internally, intermediaries should seek to report not only the claims circumstances but also the near-misses and should actively try to reduce the incidence of errors, thereby protecting both their client, their PI insurers and, ultimately, themselves.

  • Tony Howe is managing director of the Collegiate Group of Companies.

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