The weakest link
A chain is only as strong as its weakest link.
In recent articles I have focused on areas where the skill of the intermediary has been found wanting because he did not realise that some element of coverage was not in place which the customer thought should be.
What is surprising, however, is how many times claims arise against intermediaries because of the simplest failure of all – the failure to ensure that the client is actually on risk at all.
Murphy's Law seems to dictate that the serious losses tend to occur when the client is off risk.
Not atypical is the following: an intermediary discussed the renewal of a liability and contractors' all-risk policy with a client.
The proposal was completed and should have been sent to insurers that day as time for renewal was rapidly approaching.
Unfortunately, the memo was placed with non-urgent company post that was batched up and sent at the end of the week. Late on Friday afternoon it was realised that the proposal had not been sent off and cover had expired.
Some desultory attempts to contact the underwriters were made. But, needless to say, at 1.30am the next day an arson attack hit the property.
The insurers could not trace receipt of any communication and were deliberating whether to meet the claim – which was going to be substantial if the property had to be rebuilt.
Perhaps symptomatic of the general malaise in the operation of this intermediary's affairs, his own professional indemnity insurance had been placed with new underwriters.
A row was now brewing as to whether the matter was sufficiently serious to have been notified on the old policy, since the insured had known prior to renewal that there was a substantial doubt over whether his client was covered for losses arising out of the arson attack and that he had failed to meet his client's instruction.
In the past insurance companies (perhaps mindful of their own administrative failures) were more ready to pay for human error.
In today's environment, claims managers are finding it far harder to explain why they have paid out on claims when they did not have to.
While insurers will value a business relationship and may make ex-gratia payments, they are far less likely to do so when the business relationship is one of relatively little value to them.
The best protection that an intermediary can have is to do the job properly. Any reliance on the goodwill of insurance companies (particularly when there is professional indemnity insurance in place) is likely to be misplaced.
The need to have adequate procedures in place and to diary renewals in good time is not only good practice, it is basic commonsense.
Little wonder that the General Insurance Standards Council, in its consultative document, is suggesting that members should "ensure that internal controls and systems are adequate for the size, nature and complexity of their business".
There is also a need for adequate means of checking that those systems are complied with.
The industry will be justly praised if it manages to eradicate the worst type of "hole in the cover" – where cover is simply not in place!