Brokers are vulnerable to claims from clients newly empowered by FSA regulation To create a level playing field Biba is launching a PI initiative to help them themselves.
There are not many things in life that a broker fears more than a visit from the FSA, but coming a close second is the fear of PI insurance.
Graeme Trudgill of Biba comments: "Many of our members have told us that they have had problems getting claims paid and understanding the small print of the PI policy.
"So, in October 2004, with FSA regulation looming the following January, the general insurance brokers committee authorised an initiative to help members understand the PI market and what is required of them, both under FSA regulation and as policyholders. It also will help brokers to access a better level of protection than currently exists."
Biba appointed specialist independent consultants, Flaxman Partners, to prepare and implement a strategy which sets out:
- To help members attain optimum protection from the insurance market
- To assist members in becoming more aware of the risks associated with insurance intermediation
- To assist members in avoiding breaches of regulation and claims of negligence
- To offer support in the notification, management and negotiation of complaints or claims
- To offer members advice in connection with management of risk
- To help members understand their roles, duties and obligations as insurance intermediaries and assist them in achieving high standards of competence in practice.
Biba chief executive Eric Galbraith says: "The first step has been to provide members with a choice of broker. Specialist brokers Alexander Forbes, FirstCity and Towergate Finch were offered accredited broker status and at the Biba conference in April 2005 they made their mark.
"We wanted to be sure that every member had access to a specialist PI broker, and we believe that the three brokers represent a wide cross-section of market interests for the benefit of members."
Biba fears that FSA regulations have brought with them potential increases in exposure to complaints and claims.
Roger Flaxman, principal of Flaxman Partners, says: "A broker's responsibility for assessing the demands and needs of his client requires more than just a form filling skill. There is a duty of care owed in this act and it would be surprising if lawyers acting for claimants did not at some time try to exploit the regulatory requirement to prove a claim of negligence."
There is also a concern about the implied risks associated with the Treating Customers Fairly (TCF) initiative. There is no definition of what constitutes treating a customer fairly, but the implication is that the existence of the FSA principle will, in itself, imply a duty of care to the customer in matters that were not so clear-cut in the past.
"As customer awareness of the FSA principle of TCF becomes more widely known it can be expected that, where solicitors act for the customer, they will use the FSA principle as an additional benchmark by which to allege a breach of duty," says Flaxman.
"This presents a heightened risk because the broker or intermediary will be required to demonstrate that they have exercised good judgment in dealing with these matters. While the broker may not be entirely responsible for not treating a customer fairly as the agent of the insured and of the insurer in some cases, we must assume that brokers will be held to account if lawyers determine that they can be."
Chris Frost is chairman of GIBC and a specialist PI broker in his own right. He says: "We need to have certainty as to what our members are covered for, and while we do not intend to introduce a single standard policy wording we have decided to prepare a 'benchmark' model policy wording that will help members understand what it is they are buying.
"Last year Biba found seven different policy wordings in the market and there are some very marked differences in the cover they offer.
"So we commissioned solicitors to assist us in preparing our benchmark policy that will be made available to members, brokers and insurers soon."
Galbraith says: "We want to make it clear that we are seeking a quality insurance - not to drive insurers away from offering cover. There is no sense in doing that."
Biba wants its members to be recognised as something special and that, Galbraith says, means raising the bar with regard to standards of practice and competence.
Steve White, head of compliance at Biba, warns: "Compliance is not a substitute for risk management. Compliance is part of risk management and the two should be fully integrated."
Biba's members will shortly be receiving their first professional indemnity handbook containing advice on important matters of regulation, liability, risk management and insurance requirements.